<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
REGISTRATION NO. 333-18769
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
APOLLO BIOPHARMACEUTICS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3160456
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
</TABLE>
ONE KENDALL SQUARE, BUILDING 200, SUITE 2200, CAMBRIDGE, MASSACHUSETTS 02139
(Address, Including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KATHERINE GORDON, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Apollo BioPharmaceutics, Inc.
One Kendall Square, Building 200, Suite 2200
Cambridge, Massachusetts 02139
(617) 621-7154
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL LYTTON, ESQ. HAROLD E. BERRITT, ESQ.
Palmer & Dodge LLP Rubin Baum Levin Constant Friedman &
One Beacon Street Bilzin
Boston, Massachusetts 2500 First Union Financial Center
02108-3190 Miami, Florida 33131-2336
(617) 573-0100 (305) 374-7580
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, $.02 par value per share, and a Warrant
to purchase one share of Common Stock.......... 1,380,000 $5.75(2) $7,935,000(1)(2) $2,404.54
Warrants to purchase Common Stock................ 120,000 $0.01 $1,200 $0.36
Warrants to purchase Common Stock................ 1,380,000 (3) -- --
Common Stock, $.02 par value per share(4)........ 1,500,000 $7.15(2) $10,725,000(2) $3,250.00
Common Stock, $.02 par value per share........... 1,380,000 (3) -- --
</TABLE>
(1) Includes 180,000 Units which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(3) The offering price attributable to these securities is included in the
offering price of the Units in the above calculation.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants and
120,000 shares of Common Stock to be issued to the Underwriters upon
exercise of certain other warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of the Registration Statement and Outside Front
Cover Page of Prospectus............................ Forepart of the Registration Statement and Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management; Principal Stockholders; Certain
Transactions
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Management; Principal Stockholders
12. Description of Securities............................ Outside Front Cover Page; Description of Securities
13. Interests of Named Experts and Counsel............... Not Applicable
14. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities...................... Management
15. Organization Within Last Five Years.................. Certain Transactions
16. Description of Business.............................. Prospectus Summary; Capitalization; Selected
Financial Data; Business; Management; Certain
Transactions; Principal Stockholders; Financial
Statements
17. Management's Discussion and Analysis or Plan of
Operation........................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. Inside Front Cover Page; Risk Factors; Description of
Securities; Underwriting
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 17, 1997
1,200,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
--------------------------
Apollo BioPharmaceutics, Inc. (the "Company") is hereby offering
1,200,000 units ("Units"), each Unit consisting of one share of the Company's
common stock, $0.02 par value per share (the "Common Stock"), and one redeemable
warrant (each, a "Warrant" and collectively, the "Warrants") to purchase one
share of Common Stock of the Company. Each Warrant entitles the registered
holder thereof to purchase, at any time until the fifth anniversary of the date
of this Prospectus (the "Expiration Date"), one share of Common Stock at an
exercise price of $ per share [130% of the initial public offering price of the
Common Stock], subject to adjustment under certain circumstances. The components
of the Units are separately transferable immediately upon issuance. The Warrants
are redeemable by the Company, in whole or in part, at a redemption price of
$0.25 per Warrant, upon at least 30 days' prior written notice, commencing one
year from the date of this Prospectus, if the average of the closing bid prices
of the Common Stock shall equal or exceed $ per share [200% of the initial
public offering price of the Common Stock] for 20 consecutive business days
ending within 10 business days of the date on which notice of redemption is
given. See "Description of Securities -- The Warrants Offered." Prior to this
offering, there has been no public market for any securities of the Company. It
is currently anticipated that the initial public offering price of the Units
will be between $4.75 and $5.75 per Unit. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock and the Warrants on
the Nasdaq SmallCap-SM- Market under the symbols "ABPI" and "ABPIW,"
respectively.
--------------------------
THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6-17.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit................................................. $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross proceeds of this offering, payable to the managing underwriter of the
several underwriters (the "Managing Underwriter"), (ii) five-year warrants
(the "Managing Underwriter's Warrants") entitling the Managing Underwriter
to purchase up to 120,000 shares of Common Stock at an exercise price of
$ per share [130% of the initial offering price of the Common Stock],
(iii) a commission, based upon the exercise price of the Warrants, equal to
5% of the exercise price of the Warrants and (iv) a three-year consulting
agreement with the Company providing for an annual fee of $36,000. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $590,000,
including the Managing Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 180,000 Units solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."
--------------------------
The Units are offered by the several Underwriters named herein on a firm
commitment basis subject to prior sale, when, as and if accepted by them and
subject to certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify this offer and to reject orders in whole or in part. It is
expected that delivery of the Units will be made at the offices of First United
Equities Corporation, 200 Garden City Plaza, Suite 518, Garden City, New York
11530 on or about , 1997.
FIRST UNITED EQUITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NEUROCALC-TM- is a trademark of the Company.
Neurestrol-Registered Trademark- is a registered trademark of Endocon, Inc.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE
HEADING "RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (I) HAS BEEN ADJUSTED TO REFLECT A RECENTLY-COMPLETED 3 1/3-FOR-1
REVERSE STOCK SPLIT OF THE OUTSTANDING COMMON STOCK AND (II) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
THE COMPANY
Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a
development-stage company which is engaged in the development, through
agreements with research institutions and pharmaceutical companies, of
proprietary drugs that protect brain cells from damage caused by disease, injury
and aging. The Company's target applications include the treatment of
Alzheimer's disease, Parkinson's disease, brain damage resulting from stroke and
other age-related diseases and conditions. The Company's lead product candidates
are based on naturally-occurring hormones that have been demonstrated by
Company-sponsored research to protect brain cells from damage caused by disease,
trauma and aging. The Company's major product initiatives are based on estrogen
compounds, calcitriol or vitamin D-related compounds and other types of
neurosteroids.
ABPI-124 and NEURESTROL-REGISTERED TRADEMARK-, two of the Company's lead
product candidates, are in development by the Company and its partners for the
prevention of neurodegeneration in Alzheimer's disease. ABPI-124 is a type of
estrogen that the Company's management believes will be useful in preventing
brain cell death without inducing feminizing side effects (e.g. breast
enlargement) and therefore could be used to treat men as well as women.
NEURESTROL is an estrogen-based, subcutaneous implant in development for the
long-term, controlled delivery of estrogen in a single dose for the treatment of
Alzheimer's disease. NEURESTROL is the subject of an Investigational New Drug
Application for Phase I testing in humans. An additional product candidate,
NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a
small number of patients with Alzheimer's disease in a trial funded by the
National Institutes of Health at the University of Kentucky Medical School. The
Company continues to sponsor testing of these as well as other potentially
neuroprotective compounds for efficacy in the treatment of other
neurodegenerative conditions such as Parkinson's disease, Age-Related Memory
Impairment and brain-cell death from stroke. In addition to its pharmaceutical
product candidates, the Company is also currently evaluating a Hormone
Responsiveness Diagnostic test that may predict responsiveness to hormone
therapy.
Development of the Company's products to date has been based, in large
part, on intellectual property it has licensed from, and research it has
sponsored at, the medical schools of two universities. The Company intends to
continue to acquire licenses to intellectual property that could advance the
Company's product development efforts. Two patents licensed exclusively to the
Company have recently been issued in the United States. The first patent covers
the use of estrogen compounds for neuroprotection in the treatment of certain
diseases, including Alzheimer's disease, and the second patent covers the
Company's Hormone Responsiveness Diagnostic test.
The Company's commercialization strategy is to enter into strategic
alliances with biotechnology and pharmaceutical companies for the development
and marketing of its product candidates. The Company currently has a strategic
alliance with Athena Neurosciences, Inc. ("Athena"), for the development of
estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc.
("Endocon"), for the joint development of NEURESTROL. Mr. Robert J. Leonard, a
member of the Board of Directors, Vice President and shareholder of the Company,
is the acting Chief Executive Officer of Endocon. The Company plans to seek
additional strategic partners for the development of its product candidates.
The Company is a Delaware corporation that was incorporated on July 20,
1992 as Apollo Genetics, Inc. and subsequently changed its name to Apollo
BioPharmaceutics, Inc. in December 1996. The Company's offices are located at
One Kendall Square, Building 200, Suite 2200, Cambridge, Massachusetts 02139.
The Company's telephone number is (617) 621-7154.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by Company..... 1,200,000 Units, each Unit consisting of one share of
Common Stock and a Warrant to purchase one share of
Common Stock. The Common Stock and the Warrants will be
separately transferable immediately following the
offering. See "Description of Securities."
Terms of Warrants................. Each Warrant entitles the holder to purchase one share
of Common Stock, for an exercise price of $ , at
any time until the fifth anniversary of the date of this
Prospectus (the "Expiration Date"), subject, in certain
circumstances, to earlier redemption by the Company. The
exercise price and number of shares issuable upon the
exercise of the Warrants are subject to adjustment in
certain circumstances. See "Description of
Securities--The Warrants Offered."
Shares of Capital Stock
Outstanding Common Stock:
Prior to this Offering.......... 4,216,063 shares(1)
After this Offering............. 5,416,063 shares(1)
Use of Proceeds................... The Company intends to utilize the net proceeds of this
offering to fund product development activities, hire
additional personnel and establish a small laboratory
facility and for general working capital purposes and
operating expenses. See "Use of Proceeds."
Risk Factors...................... Investment in these securities is speculative and
involves a high degree of risk and immediate and
substantial dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq SmallCap-SM-
Market Symbols(2)............... ABPI; ABPIW.
</TABLE>
- ------------------------
(1) Does not include the possible issuance of (i) 600,000 shares of Common Stock
reserved for issuance upon the exercise of options granted or available for
grant under the Company's 1993 Incentive and Non-Qualified Stock Option
Plan; (ii) 90,000 shares reserved for issuance upon the exercise of options
granted or available for grant under the Company's 1996 Director Stock
Option Plan; (iii) 360,000 shares of Common Stock reserved for issuance upon
exercise of certain warrants previously issued by the Company; (iv) 157,142
shares issuable upon exercise of a convertible right to receive royalties;
(v) 1,200,000 shares of Common Stock reserved for issuance upon exercise of
the Warrants to be issued in this offering; (vi) 180,000 Units reserved for
issuance upon exercise of the Underwriters' over-allotment option; and (vii)
120,000 shares of Common Stock reserved for issuance upon exercise of the
Managing Underwriter's Warrants. See "Management;" "Certain Transactions;"
"Description of Securities;" and "Underwriting."
(2) No assurance can be given that a trading market will develop for any of the
Company's securities. See "Risk Factors--Possible Delisting of Securities
from the Nasdaq SmallCap-SM- Market."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................. $ 3,954 $ 2,535 $ 191,032
Expenses................................................................. 526,961 419,684 594,423
Net loss................................................................. $ (523,007) $ (417,149) $ (403,391)
----------- ----------- -----------
----------- ----------- -----------
Net loss per share....................................................... $ (.14) $ (.11) (.10)
Weighted Average number of shares outstanding............................ 3,660,514 3,784,623 4,185,555
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
AS
ACTUAL ADJUSTED(1)
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,254,250 $ 6,553,415
Working capital..................................................................... 955,071 6,254,236
Total assets........................................................................ 1,477,763 6,557,763
Stockholders' equity 998,584 6,078,584
</TABLE>
(1) Adjusted to reflect the sale by the Company of the 1,200,000 Units offered
hereby at an assumed public offering price of $5.25 per Unit. See "Use of
Proceeds," "Capitalization" and "Underwriting."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED BY THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN
The Company is a development-stage biotechnology company. Since its
inception in 1992, the Company has incurred losses and had an accumulated
deficit of approximately $1.8 million at December 31, 1996, substantially all of
which consisted of product development and general and administrative expenses.
Although the Company has generated fees from options and licenses pursuant to
the terms of certain licensing agreements it maintains with third parties, it
has not generated any revenues from product sales to date, and there can be no
assurance that revenues from product sales will ever be achieved. Moreover, even
if the Company eventually generates revenues from product sales, the Company
nevertheless expects to incur significant operating losses over the next several
years. The Company's ability to achieve profitable operations in the future will
depend in large part upon completing development of its products, obtaining
regulatory approvals for these products and bringing several of these products
to market. The likelihood of the long-term success of the Company must be
considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new pharmaceutical
products, competitive factors in the marketplace, as well as the regulatory
environment in which the Company operates. There can be no assurance that the
Company will ever achieve substantial revenues or profitable operations. See
"Summary Financial Data;" "Selected Financial Data;" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
TECHNOLOGICAL UNCERTAINTY; EARLY STATE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF
REGULATORY APPROVALS
The Company's proposed products will require significant further
research, development, clinical testing and regulatory clearance. The Company
has no products available for sale and does not expect to have any products
resulting from its research efforts commercially available for at least several
years. With the exception of limited clinical testing of NEUROCALC, none of the
Company's proposed pharmaceutical products has been tested in humans. The
Company has filed an Investigational New Drug Application (an "IND") with the
United States Food and Drug Administration (the "FDA") to begin a
pharmacokinetic evaluation of NEURESTROL; however, there can be no assurance
that this product or any product the Company has developed or may develop in the
future will prove to be safe to use or effective in humans. The Company's
proposed products are subject to the risk of failure inherent in the development
of products based on innovative technologies. These risks include the
possibilities that some or all of the proposed products could be found to be
ineffective or toxic or otherwise fail to receive necessary regulatory
clearances; that effective products will be uneconomical to manufacture or
market; that third parties may now or in the future hold proprietary rights that
preclude the Company from marketing such products; or that third parties will
market a superior or equivalent product. Accordingly, the Company is unable to
predict whether its product development activities will result in any
commercially viable products or applications. Furthermore, due to the extended
testing and regulatory review process required before marketing clearance can be
obtained, the Company does not expect to be able to commercialize any
therapeutic drug for at least several years, either directly or through any
existing and potential corporate partners or licensees. There can be no
assurance that the Company's proposed products will prove to be safe or
effective in humans or will receive the regulatory approvals that are required
for commercial sale. See "Business."
6
<PAGE>
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company will require substantial funds for further development and
clinical testing of its potential products and to commercialize any products
that may be developed. The Company's capital requirements will depend on
numerous factors, including the progress of its product development programs,
the progress of pre-clinical and clinical testing, the time and cost involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments and the ability of the Company to
establish strategic alliances. The Company has no current sources of significant
funding beyond the proceeds from this offering. The Company believes that its
existing capital resources, including the estimated net proceeds of this
offering and interest thereon, will be sufficient to satisfy its operations for
at least 24 months from the date of this Prospectus. The Company anticipates
that after 24 months, it will require substantial additional capital. Moreover,
if the Company experiences unanticipated cash requirements during the next 24
months, the Company will require additional capital to fund its operations, to
continue product development programs, including the pre-clinical and clinical
testing of its potential products, and to commercialize any products that may be
developed. The Company may seek additional funding through public or private
sales of equity securities or collaborative or other arrangements with third
parties. There can be no assurance that additional funds will be available on
acceptable terms, if at all. If additional funds are raised by issuing equity
securities, further substantial dilution to existing stockholders, including
purchasers of the Units offered hereby, may result. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its development programs, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products or technologies that the Company
would not otherwise relinquish. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON STRATEGIC ALLIANCES
The Company has established strategic alliances with Athena and Endocon
with respect to the development and commercialization of certain of the
Company's products. The Company is dependent upon its strategic partners to
conduct preclinical tests and human trials, to obtain required regulatory
approvals for product candidates and, in the case of Athena, to provide adequate
funding for product testing. In addition, the Company is dependent on the
cooperation of these partners in selecting compounds for subsequent development
as product candidates, conducting preclinical testing and clinical trials and
obtaining required regulatory approvals for the Company's drug candidates.
Failure of these partners to undertake reasonable efforts toward product
development would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's strategy for
development and commercialization of its products is dependent upon entering
into additional arrangements with research collaborators, corporate partners and
others, and upon the subsequent success of these third parties in performing
their obligations. There can be no assurance that the Company will be able to
enter into additional strategic alliances on terms favorable to the Company, if
at all. Failure of the Company to enter into additional strategic alliances
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Strategic Alliances and
Licenses."
The Company cannot control the amount and timing of resources which its
corporate partners devote to the Company's programs or potential products. If
any of the Company's corporate partners breach or terminate their respective
agreements with the Company or otherwise fail to conduct their development
activities in a timely manner, the preclinical testing, clinical development or
commercialization of product candidates will be delayed, and the Company will be
required to devote additional resources to product development and
commercialization, terminate certain development programs or seek new corporate
partners. The Company's strategic alliances with Athena and Endocon are subject
to
7
<PAGE>
termination by each of them. There can be no assurance that Athena or Endocon
will not elect to terminate their strategic alliances with the Company prior to
their respective scheduled expiration dates. The Company and Endocon are
currently in discussions regarding the execution of a license agreement for
NEURESTROL which will supercede the Company's existing agreement with Endocon.
There can be no assurance that the Company will be able to enter into any such
new license agreement on terms favorable to the Company, if at all. In addition,
if the Company's corporate partners effect a merger with a third party, there
can be no assurance that the strategic alliances will not be terminated or
otherwise materially adversely affected. The termination of any current or
future strategic alliances could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's corporate
partners may develop, either alone or with others, products that compete with
the development and marketing of the Company's potential products. Competing
products, either developed by the Company's corporate partners or to which the
corporate partners have rights, may result in their withdrawal of support with
respect to all or a portion of the Company's technology, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that disputes will not arise in
the future with respect to the ownership of rights to any products or technology
developed with corporate partners. These and other possible disagreements
between corporate partners and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates or could require or result in litigation or arbitration, which would
be time-consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Strategic Alliances and Licenses."
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
The Company's success, competitive position and potential future income
will depend, in part, on its ability to obtain patent protection, in various
jurisdictions, relating to the technologies, processes and products it is
developing and may develop in the future. The Company has licensed rights to
certain proprietary technologies from the University of Kentucky Research
Foundation and the University of Florida Research Foundation, Inc. To date, two
patents have been issued relating to these technologies and ten related patent
applications are pending in major markets of the developed world. Additional
applications have been filed in certain other countries. The Company plans to
seek additional patents in the future and to file patent applications in other
countries and to license additional rights to certain unpatented and patented
proprietary technology from research institutions. See "Business--Strategic
Alliances and Licenses;" and "Business--Intellectual Property Rights."
The patent positions of pharmaceutical, biotechnology and drug delivery
companies, including the patent rights licensed by the Company, are uncertain
and involve complex legal and factual issues. Additionally, the coverage claimed
in a patent application can be significantly reduced if and when a patent is
issued. As a consequence, the Company does not know whether its pending patent
applications will result in the issuance of patents. Since patent applications
in the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that the inventions
described in its patent applications are not subject to prior art, that the
inventors of inventions covered in the pending patent applications were the
first inventors or that the patent applications for these inventions were the
first to be filed. Moreover, the Company may have to participate in any
interference proceedings which may be declared by the United States Patent and
Trademark Office to determine the priority of any inventions covered by its
patent applications, which could result in substantial cost to the Company,
whether or not the eventual outcome is favorable to the Company.
There can be no assurance that the Company will develop additional
proprietary products that are patentable, that any patents issued to, or
licensed by, the Company will be valid or enforceable, or that patents issued
to, or licensed by, the Company will afford protection against competitors with
similar
8
<PAGE>
technology. An adverse outcome could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from or to
third parties or require the Company to cease using the technology in dispute.
In addition, there can be no assurance that others will not independently
develop substantially equivalent proprietary information or otherwise obtain
access to the Company's know-how or that others will not be issued patents that
prevent the sale of the Company's products or require licensing and the payment
of significant fees or royalties by the Company for the pursuit of its business.
Moreover, there can be no assurance that the Company's technology does not
infringe upon any valid claims of patents owned by others. If the Company was
found by a court to be infringing on a patent held by another, the Company would
have to discontinue all activities related to that patented technology or seek a
license to use that patented technology.
If a legal action claiming patent infringement were to be brought
against the Company or its licensees, the Company could incur substantial costs
in defending itself, and there can be no assurance that an action of this sort
would be resolved in the Company's favor. If such a dispute were to be resolved
against the Company, in addition to incurring potential damages, the Company's
continued testing, manufacture or sale of one or more of its technologies or
proposed products, if developed, could be enjoined. Defense of any lawsuit or
failure to obtain any required license could, depending on the circumstances,
have a material adverse effect on the Company.
Some of the intellectual property and prospective products that the
Company has licensed or invented may involve naturally occurring or synthetic
molecules, the patentability of which is uncertain and involves complex legal
and factual questions. Legal standards surrounding the viability of
biotechnology patents are in transition, and no assurance can be given as to
whether patents will be issued, the degree of protection that any patents will
afford or the Company's ability to avoid violating or infringing upon patents
issued to others.
All of the Company's licenses from universities involve programs that
were originally funded by the United States Government and, as a result, the
United States Government commonly retains certain statutory rights, including a
non-exclusive, royalty-free license to use the licensed inventions, and to
manufacture and distribute products based thereon, for Government use only.
Several of the patents and patent applications licensed to the Company
are so-called "use patents" and describe novel uses rather than the specific
composition of matter of certain compounds. In these cases, another company
could, without infringing on the Company's intellectual property, market these
compounds for unrelated disease indications to the extent that those companies
already have FDA approval. Marketing of an existing or new compound described by
the Company's use patents for the described indication requires that the
marketer secure a license from the Company or one of its sublicensees. If a
company were to market a product which is the subject of one of the Company's
patents, the Company or its sublicensees might have to file suit in order to
stop the infringement and report such activities to the FDA.
Despite the issuance of patents and the underlying commercial protection
afforded by the Company's intellectual property, products produced by third
parties may compete "off label" with the Company's products. For example, once
prescribed, patients may take commercially available estrogen products for
indications other than those that are approved by the FDA. According to current
law, companies may not market for off-label indications.
The Company relies on certain technologies that are not patentable or
proprietary and are therefore available to the Company's competitors. The
Company also relies on certain proprietary trade secrets and know-how that are
not patentable. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants, and certain of its collaborators,
there can be no assurance that (i) these agreements will not be breached; (ii)
the Company would have adequate remedies for any breach; or (iii) the
9
<PAGE>
Company's trade secrets will not otherwise become known or be independently
developed or discovered by its competitors. See "Business--Intellectual Property
Rights."
COMPETITION
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including well-known pharmaceutical
companies, that are engaged in the development of products for certain of the
applications being pursued by the Company. The Company's larger competitors
include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb Company, Glaxo
Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion Roussel Ltd. and
Pfizer, Inc., as well as Athena. There may be other companies of which the
Company is not aware with research and development programs similar to those of
the Company. Many of the Company's competitors have substantially greater
financial, research and development, manufacturing and marketing experience and
resources than the Company and represent substantial long-term competition for
the Company. Companies may succeed in developing pharmaceutical products that
are more effective and/or less costly than any products that may be developed by
the Company or its strategic partners.
Factors affecting competition in the pharmaceutical industry vary,
depending on the extent to which a competitor is able to achieve a competitive
advantage based on its proprietary technology. If the Company is able to
establish and maintain a significant proprietary position with respect to its
products, competition will likely depend primarily on the effectiveness of the
product and the number and severity of its unwanted side effects as compared to
alternative products.
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed drugs, new developments are expected to
continue and there can be no assurance that discoveries by others will not
render the Company's potential products noncompetitive. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. There can be no assurance that the Company will be
able to successfully achieve all of the foregoing objectives. See
"Business--Competition."
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND MARKETING
Presently, the Company does not intend to conduct clinical trials or
manufacture or market any of its proposed products without the involvement of
strategic partners. The Company intends to continue to seek to enter into
arrangements with third parties to conduct these activities for its products.
There can be no assurance that any third-party arrangements can be successfully
negotiated or that desired arrangements will be on commercially reasonable
terms. To the extent that the Company arranges with any third parties to conduct
clinical trials, or to manufacture or market its products, the success of
clinical trials and/ or the manufacture or marketing of the Company's products
will depend on the efforts of these third parties. There can be no assurance
that either the Company or its third-party collaborators can successfully
introduce the Company's proposed products, that they will achieve acceptance by
patients, health care providers and insurance companies, or that they can be
manufactured and marketed at prices that would permit the Company to operate
profitably. See "Business--Marketing and Sales Strategy."
LACK OF OPERATING EXPERIENCE
To date, the Company has engaged in the development of pharmaceutical
technologies and products through the sponsorship of research programs in
universities. Although members of the Company's management have substantial
experience in biotechnology company operations, the Company has no experience in
conducting research, manufacturing, procuring products in commercial quantities,
or the
10
<PAGE>
marketing and sales of pharmaceutical products. In addition, management of the
Company has only limited experience in negotiating and maintaining strategic
relationships, conducting clinical trials and other later-stage phases of the
regulatory approval process and the commercialization of pharmaceutical
products. There can be no assurance that the Company will be able to
successfully engage in any of these activities with respect to any of its
products. In the event the Company decides to establish a commercial-scale
manufacturing facility for its products, the Company will require substantial
additional funds and personnel and will be required to comply with extensive
regulations applicable to this type of facility. There can be no assurance that
the Company will be able to secure funds on acceptable terms, if at all, or will
successfully manufacture or market any product it may develop, either
independently or pursuant to manufacturing or marketing arrangements, if any,
with third parties. See "Business--Manufacturing Plans" and "--Marketing and
Sales Strategy."
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of the Company's business,
the Company will be highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to attract and retain qualified
personnel necessary for the development of its business.
The Company is highly dependent upon the principal members of its
scientific and management staff, including, in particular, Dr. Katherine Gordon.
The loss of Dr. Gordon or other key scientific and technical personnel could be
harmful to the Company. The Company maintains key person insurance on the life
of Dr. Gordon in the amount of $1.0 million. The Company's employment agreement
with Dr. Gordon extends until October 31, 1998 and will thereafter be extended
for additional two-year terms unless either party provides notice of its intent
not to renew. However, there can be no assurance that the Company will be
successful in retaining Dr. Gordon. See "Management--Employment Agreements,
Executive Compensation and Agreements With Directors." The Company plans to
recruit additional management and scientific personnel, which may require the
Company to offer competitive compensation packages, including stock options. Its
failure to recruit personnel could have a material adverse effect on the
Company's business and results of operations.
All of the Company's scientific and clinical advisors and consultants
are employed on a full-time basis by academic or medical institutions.
Accordingly, the Company's advisors and consultants will only be able to devote
a small portion of their time to the Company. In addition, in certain
circumstances, inventions or processes discovered by the Company's advisors and
consultants independently of the Company's sponsored research programs may
remain the property of their full-time employers or of other companies and
institutions for which they now consult. See "Management--Scientific and
Clinical Advisors."
Certain agreements for research funded by the Company provide the
principal investigators conducting research on the Company's behalf with full
discretionary authority over the conduct of the research activities at their
laboratories, and further provide for payment on a chronological, rather than
performance, basis. There can be no assurance that the interests and motivations
of the Company's academic partners will remain consistent with those of the
Company. Moreover, there can be no assurance that the Company will be able to
successfully negotiate license rights to the intellectual property that may
result from these sponsored research programs or that such licenses will be on
commercially acceptable terms.
DEVELOPMENT OF NEW TECHNOLOGIES AND PRODUCTS
The Company is engaged in the biopharmaceutical field, which is
characterized by extensive research efforts and rapid technological progress.
New developments in molecular cell biology, molecular
11
<PAGE>
pharmacology, recombinant DNA technology and other areas are expected to
continue at a rapid pace in both industry and academia. There can be no
assurance that research and discoveries by others will not render some or all of
the Company's programs or products noncompetitive or obsolete.
Some of the Company's projects involve the attempt to develop new
technologies or to apply existing technologies, several of which are
experimental, to the development of new products. This type of experimentation
is costly, time consuming and prone to produce unsatisfactory results. No
assurance can be given that unforeseen problems will not develop with these
technologies or applications or that commercially feasible products will
ultimately be developed by the Company. Moreover, even when a new technology or
product is successfully developed, the refinement of the new technology or
product and the definition of the clinical applications and limitations of the
new technology or product may take years and require the expenditure of large
sums of money or may prove to be commercially unfeasible.
NO ASSURANCE OF UNITED STATES OR FOREIGN REGULATORY APPROVAL; GOVERNMENT
REGULATION
Human therapeutic and diagnostic products such as the Company's proposed
products are subject to premarket approval by the FDA and comparable agencies in
foreign countries. The process of obtaining these approvals involves several
years of laboratory and clinical testing and other costly and time consuming
procedures. The Company cannot predict with certainty when it might submit
products, if any, for FDA or other regulatory approval. Government regulation
also controls the manufacture and marketing of these types of products.
The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive, and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. The FDA actively enforces the provisions of the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and associated regulations, including
certain regulations which prohibit the marketing of products for uses not
indicated in the labeling of products, and conducts periodic inspections to
determine compliance with certain "current Good Manufacturing Practices"
("cGMPs") as described in the applicable regulations. Failure to comply with
applicable regulatory requirements can result in, among other things, fines,
suspensions of approvals, seizures or recalls of products, operating
restrictions, and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could prevent the Company from
obtaining, or affect the timing and cost of, future regulatory approvals. The
extent of potentially adverse government regulation which might arise from
future legislation or administrative action cannot be predicted. See
"Business--Government Regulations." The regulatory process may delay marketing
of the Company's products. Government regulation may also impose costly
procedures upon the Company's activities and effectively furnish a competitive
advantage to larger companies that compete with the Company. There can be no
assurance that any approvals will be granted on a timely basis, if at all. Any
delay in obtaining or any failure to obtain these approvals would adversely
affect the marketing of the Company's products and the ability to generate
product revenue.
Clinical testing of a pharmaceutical product is itself subject to
approval by various government regulatory authorities, including approval of an
IND with the FDA. No assurance can be given that the Company will be permitted
by regulatory authorities in the United States or elsewhere to carry out further
testing, or that, if permitted, additional clinical testing will prove that the
Company's products are safe and efficacious to the extent necessary to permit
the Company to continue product testing or obtain marketing approvals for these
products from regulatory authorities. The failure to adequately demonstrate the
safety and efficacy of a therapeutic product under development could delay or
prevent regulatory approval of the product and would have a materially adverse
effect on the Company. Delays in obtaining United States or foreign approvals
could adversely affect the marketing of the Company's products and diminish any
competitive advantage the Company may attain. In addition, delays in regulatory
approvals that may be encountered by corporate collaborators or other licensees
of the Company, if any, could adversely affect the Company's ability to receive
royalties. There can be no assurance that, if clinical trials are completed, the
Company will be able to submit a New Drug Application ("NDA") as scheduled or
that the Company's
12
<PAGE>
NDA will be reviewed and approved by the FDA or foreign regulatory agencies in a
timely manner, or at all. See "Business--Marketing and Sales Strategy" and
"Business--Government Regulations."
While the Company and certain of the Company's collaborators have
performed initial testing of some of the Company's products, further testing,
including clinical testing, will be required before the Company can obtain
marketing approval from regulatory authorities. The results of initial
preclinical and clinical testing are not necessarily predictive of results that
will be obtained from subsequent or more extensive preclinical and clinical
testing, and there can be no assurance that further trials will be successful.
The proceeds from this offering will not be sufficient to finance the
laboratory and clinical trials and other costs associated with the FDA
application and approval process for any products that the Company may develop.
Therefore, the future ability of the Company to market its products will depend
in part upon its ability to obtain additional funding or to enter into licensing
or joint venture arrangements with other companies to finance the FDA
application and approval process.
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects that the proceeds of this offering will be used for
product development, establishment of a small laboratory facility, the hiring
and retention of administrative and scientific personnel and for working capital
and general corporate purposes. The Company is not currently able to estimate
precisely the allocation of the proceeds among these uses, and the timing and
amount of expenditures will vary depending upon numerous factors. The Company's
management will have broad discretion to allocate the proceeds of this offering
and to determine the timing of expenditures. See "Use of Proceeds."
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business may be materially adversely affected by the
continuing efforts of government and third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals are subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control in those jurisdictions. In addition, an
increasing emphasis on managed care in the United States has put, and will
continue to put, pressure on pharmaceutical pricing. These proposals and trends
could decrease the price that the Company receives for any products it may
develop and thereby have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that these
proposals or initiatives have a material adverse effect on other pharmaceutical
companies that are corporate partners or prospective corporate partners for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be materially adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the costs of these
products and related treatments will be available from government
health-administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and third-party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that any third-party insurance coverage will be available to
patients for any products developed by the Company. Government and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products, and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for the Company's products, the
market acceptance of these products would be materially adversely affected.
13
<PAGE>
PRODUCT LIABILITY; RISK OF NO INSURANCE
The use of the Company's products in clinical trials and the marketing
of the Company's products may expose the Company to product liability claims.
Although the Company will attempt to obtain product liability insurance and/or
be included as an additional insured party under the respective insurance
policies of the Company's collaborators prior to the marketing of any of its
proposed products, there can be no assurance that the Company will be able to
obtain insurance or additional coverage, or, if obtainable, that the insurance
and/or coverage can be acquired at a reasonable cost or will be sufficient to
cover all possible liabilities. In the event of a successful suit against the
Company, lack or insufficiency of insurance coverage could have a material
adverse effect on the Company. Further, certain distributors of pharmaceutical
and biological products require a minimum level of product liability insurance
coverage as a condition precedent to purchasing or accepting products for
distribution. Failure to satisfy insurance requirements could impede the ability
of the Company to achieve broad distribution of its proposed products, which
would have a material adverse effect on the business and financial condition of
the Company.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers will, in the aggregate,
beneficially own approximately 21.1% of the Company's outstanding Common Stock
following the completion of this offering, assuming no exercise of the Warrants,
the Underwriters' over-allotment option or the Managing Underwriter's Warrant.
These stockholders, if acting together, would have a significant impact on all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. This concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock and/or the Warrants. In addition, the
market price of the Common Stock and/or the Warrants is likely to be highly
volatile. Factors such as fluctuations in the Company's results of operations,
timing and announcements of technological innovations or new products by the
Company or its competitors, FDA and foreign regulatory actions, developments
with respect to patents and proprietary rights, public concern as to the safety
of products developed by the Company or others, changes in health care policy in
the United States and in foreign countries, changes in stock market analyst
recommendations regarding the Company, the pharmaceutical industry generally and
general market conditions each may have a significant adverse effect on the
market price of the Common Stock and/or the Warrants. In addition, it is likely
that, during at least some future financial reporting periods, the Company's
results of operations will fail to meet the expectations of stock market
analysts and investors and, in that event, the market price of the Company's
Common Stock and/or the Warrants could be materially and adversely affected.
NO PUBLIC TRADING MARKET
Prior to this offering, there has been no public market for the Common
Stock and no public market for the Warrants. There can be no assurance that an
active trading market will develop or, if one does develop, that it will be
maintained. The initial public offering price of the Units and the exercise
price of the Warrants were established by negotiations between the Company and
the Managing Underwriter and may not be indicative of prices that will prevail
in the public trading market. See "Underwriting."
14
<PAGE>
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and By-laws may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. These provisions may also make it more difficult for stockholders to take
certain corporate actions and could have the effect of delaying or preventing a
change in control of the Company. See "Management" and "Description of
Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including Common Stock issued upon the exercise
of outstanding options and warrants) in the public market after this offering
could materially adversely affect the market price of the Common Stock. These
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company's management deems acceptable, or at all. Upon the completion of
this offering, the Company will have 5,416,063 shares of Common Stock
outstanding, assuming no exercise of options or warrants after February , 1997
and assuming no exercise of the Underwriters' over-allotment option. Of these
outstanding shares of Common Stock, the 1,200,000 shares sold in this offering
as part of the Units will be freely tradeable, without restriction under the
Securities Act, unless purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. The remaining 4,216,063 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act and were issued and sold by
the Company in reliance on exemptions from the registration requirements of the
Securities Act. These shares may be resold in the public market only if
registered or pursuant to an exemption from registration, such as Rule 144 or
Rule 701 under the Securities Act. All officers, directors and certain holders
of Common Stock owning, in the aggregate, shares of Common Stock
have agreed, pursuant to certain lock-up agreements, that they will not offer,
sell, contract to sell, grant any option to sell, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of Common Stock owned
by them, or that could be purchased by them through the exercise of options or
warrants to purchase Common Stock of the Company, for a period of 13 months
after the date of this Prospectus without the prior written consent of the
Managing Underwriter. Upon expiration of the lock-up agreements, approximately
shares of Common Stock held by existing stockholders will be
immediately eligible for resale pursuant to Rule 144, and approximately
shares will be eligible for resale under Rule 144 from time to time
thereafter. The remaining shares held by existing stockholders will
become eligible for resale pursuant to Rule 144 upon the expiration of their
respective two-year holding periods. As of February , 1997 shares
were subject to outstanding options and warrants, of which shares
are subject to the lock-up agreements described above. Immediately following the
completion of this offering, 214,287 of the outstanding shares will be entitled
to certain registration rights. The number of shares sold in the public market
could increase if registration rights are exercised. See "Description of
Securities--Registration Rights" and "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS; ADVERSE
EFFECT OF POSSIBLE REDEMPTION OF WARRANTS
Purchasers of the Units will be able to exercise the Warrants included
therein only if a current prospectus relating to the securities underlying the
Warrants is then in effect under the Securities Act and if the securities are
qualified for sale or exempt from qualification under the applicable securities
or "blue sky" laws of the states in which the various holders of the Warrants
then reside. The value of the Warrants may be greatly reduced if a current
prospectus covering the securities issuable upon the exercise of the Warrants is
not kept effective or if the securities are not qualified or exempt from
qualification in the states
15
<PAGE>
in which the holders of the Warrants then reside. There can be no assurance that
the Company will be able to keep effective any prospectus or obtain any
qualifications or exemptions. See "Description of Securities--The Warrants
Offered."
In addition, the Warrants are subject to redemption by the Company at
$0.25 per Warrant, commencing one year from the date of this Prospectus, on at
least 30 days' prior written notice if the average of the closing bid prices of
the Common Stock for 20 consecutive business days ending within 10 business days
of the date on which the notice of redemption is given equals or exceeds $
per share [200% of the initial public offering price of the Common Stock]. If
the Warrants are redeemed, holders of Warrants will lose their right to exercise
the Warrants, except during the 30-day notice of redemption period. Upon the
receipt of a notice of redemption of the Warrants, the holders thereof would be
required to: exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so; sell the Warrants at the then market
price, if any, when they might otherwise wish to hold the Warrants; or accept
the redemption price, which is likely to be substantially less than the market
value of the Warrants at the time of redemption. See "Description of
Securities--The Warrants Offered."
DILUTION
Investors acquiring shares of Common Stock included within the Units
offered hereby will incur immediate and substantial net tangible book value
dilution of $4.13. To the extent that currently outstanding options and warrants
to purchase the Company's securities are exercised, there will be further
dilution. See "Dilution."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET
In order to qualify for initial listing on the Nasdaq SmallCap-SM-
Market, a company must, among other requirements, have at least $4,000,000 in
total assets and a minimum bid price for its common stock of $3.00 per share.
While it is presently expected that the Company's Common Stock and Warrants will
be eligible for initial listing on the Nasdaq SmallCap-SM- Market upon the
completion of this offering, there can be no assurance that this will actually
occur. In addition, even if the Company qualifies for initial listing on the
Nasdaq SmallCap-SM- Market, there can be no assurance that the Company will meet
the criteria for continued listing of securities on the Nasdaq SmallCap-SM-
Market adopted by the Securities and Exchange Commission (the "Commission"). As
currently in effect, these continued listing criteria include a minimum of
$2,000,000 in total assets and a minimum bid price of $1.00 per share of common
stock. If an issuer does not meet the $1.00 minimum bid price standard, it may,
however, remain on the Nasdaq SmallCap-SM- Market if the market value of its
public float is at least $1,000,000 and the issuer has capital surplus of at
least $2,000,000. The Nasdaq Stock Market has adopted heightened standards for
continued listing on the Nasdaq SmallCap-SM- Market which, if approved by the
Commission, might make continued listing of the Company's Common Stock more
difficult. If the Company became unable to meet the continued listing criteria
of the Nasdaq SmallCap-SM- Market because of continued operating losses or
otherwise and became delisted therefrom, trading, if any, in the Common Stock
and the Warrants would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" of the NASD's "Electronic Bulletin Board." As a
result, an investor may find it more difficult to dispose of the Company's
securities.
RISK OF LOW-PRICE; "PENNY STOCK" REGULATIONS
If the Company's securities are delisted from the Nasdaq SmallCap-SM-
Market, they may become subject to Rule 15g-9 under the Securities Exchange Act
of 1934 (the "Exchange Act"), which imposes additional sales practice
requirements on broker-dealers that sell these securities, except in
transactions exempted by Rule 15g-9, including transactions meeting the
requirements of Rules 505 or 506 or Regulation D under the Securities Act, and
transactions in which the purchaser is an institutional accredited investor (as
defined) or an established customer (as defined) of the broker/dealer. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the
16
<PAGE>
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may affect the ability and/or willingness
of broker-dealers to sell the Company's securities and may consequently affect
the ability of purchasers in this offering to sell any of the securities
acquired in this offering in the secondary market.
The Commission has also adopted regulations which define a "penny stock"
to be any equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. Unless exempt, the rules require the delivery,
prior to any transactions in a penny stock, of a disclosure schedule prepared by
the Commission relating to the penny stock market. Disclosure also has to be
made about commissions payable to both the broker-dealer and the registered
representative and about current quotations for the securities. Finally, monthly
statements have to be sent, disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if those securities are listed on the Nasdaq SmallCap-SM- Market and
have certain price and volume information provided on a current and continuing
basis or if the Company meets certain minimum net tangible assets or average
revenue criteria. There can be no assurance that the Company's securities will
qualify for exemption from these restrictions. In any event, even if the Company
were exempt from these restrictions, it would remain subject to Section 15(b)(6)
of the Exchange Act, which gives the Commission the authority to prohibit any
person that is engaged in unlawful conduct while participating in a distribution
of penny stock from associating with a broker-dealer or participating in a
distribution of penny stock, if the Commission finds that a restriction would be
in the public interest. If the Company's securities were subject to the rules on
penny stocks, the prices of and market liquidity for the Company's securities
would be severely adversely affected.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
INEXPERIENCE OF MANAGING UNDERWRITER
The Managing Underwriter, which commenced operations in 1994, has acted
as a managing underwriter in only one public offering of securities. The
Managing Underwriter's lack of experience may have an adverse impact on its
ability to market the Common Stock offered hereby as well as the development and
maintenance of a trading market for the Company's Common Stock following this
offering. The Managing Underwriter intends to make a market in the Company's
Common Stock. The Managing Underwriter's inexperience may result in the
potential inability of the Managing Underwriter to utilize correctly
over-allotment, stabilization and market maintenance strategies that more
experienced underwriters employ to assist in maintaining orderly trading
markets. This may adversely affect the proposed public offering of the Units and
the ability of purchasers in the offering to resell any Units and/or any
component thereof. See "Underwriting."
17
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby are estimated
to be $5,080,000 ($5,902,150 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $5.25 per Unit,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses and assuming no exercise of the Warrants.
The Company's management expects to use approximately $3.1 million of
the net proceeds of this offering to fund future development of products, of
which approximately $1.9 million will be used for sponsored research,
approximately $900,000 will be used to establish a small laboratory facility and
approximately $300,000 will be used to hire and retain scientific personnel for
approximately the next 24 months. The balance of the net proceeds of this
offering will be used for working capital and general corporate purposes. Where
the Company's management believes appropriate, proceeds of this offering may
also be used to acquire products or technologies that complement the Company's
existing business, although there are no present understandings, agreements or
commitments with respect to any acquisitions. The amount and the timing of the
expenditures will depend on numerous factors, including the progress of the
Company's research and development programs. The amounts actually expended on
any particular project may vary significantly from the Company's current plans,
particularly given the Company's early stage of development and the uncertainty
of the drug development process.
Pending the uses described above, the net proceeds will be invested in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid dividends on its capital stock. The Company
currently intends to retain earnings, if any, and does not anticipate paying
cash dividends in the foreseeable future. Future cash dividends, if any, will be
determined by the Board of Directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company and (ii) capitalization of the Company, as
adjusted to reflect the sale of the 1,200,000 Units offered hereby, after
deducting the underwriting discount and offering expenses, at an assumed initial
public offering price of $5.25 per Unit. This table should be read in
conjunction with the financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
Stockholders' equity:
Preferred Stock--$0.01 par value; 1,000,000 shares authorized, no shares issued
and outstanding................................................................ -- --
Common Stock--$0.02 par value; 20,000,000 shares authorized, 4,216,063 shares
issued, actual; 5,416,063 shares issued, as adjusted........................... 84,321 108,321
Additional paid-in capital....................................................... 2,690,115 7,746,115
Deficit accumulated during the development stage................................. (1,775,852) (1,775,852)
------------- --------------
Total stockholders' equity....................................................... 998,584 6,078,584
------------- --------------
Total capitalization............................................................. $ 998,584 $ 6,078,584
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Does not include (a) Units issuable upon the exercise of the Underwriters'
over-allotment option, (b) shares issuable upon exercise of the Managing
Underwriter's Warrants, or (c) 871,143 shares reserved for issuance upon the
exercise of conversion rights, options and warrants outstanding as of
December 31, 1996 having a weighted average exercise price of $1.70 per
share. See "Management-- Stock Option Plans"; "Description of
Securities--Other Warrants and Convertible Notes."
19
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$778,807 or approximately $0.18 per share. Net tangible book value per share
represents the total tangible assets of the Company, less total liabilities,
divided by 4,216,063 shares of Common Stock outstanding before the completion of
this offering. Assuming the receipt by the Company of the net proceeds from the
sale of 1,200,000 Units offered hereby at an assumed initial public offering
price of $5.25 per Unit, the net tangible book value of the Company as of
December 31, 1996 would have been $6,077,972, or $1.12 per share. This
represents an immediate increase in the net tangible book value of $0.94 per
share to existing stockholders of the Company and an immediate dilution of $4.13
per share to new investors purchasing Units in this offering. The following
table illustrates the per share dilution to be incurred by new investors as of
December 31, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................................... $ 5.25
Net tangible book value per share at December 31, 1996........ 0.18
Increase per share attributable to new investors.............. 0.94
---------
Net tangible book value per share after the offering..................... 1.12
---------
Dilution per share to new investors...................................... $ 4.13
---------
---------
</TABLE>
The following table sets forth, as of December 31, 1996, the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock acquired from the Company, the total
consideration paid and the average price per share, assuming an initial public
offering price of $5.25 per Unit:
<TABLE>
<CAPTION>
SHARES PURCHASED CASH CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 4,216,063 77.8% $ 2,811,000 30.9% $ .67
New Investors..................................... 1,200,000 22.2 6,300,000 69.1 5.25
---------- ----- ------------ -----
Total......................................... 5,416,063 100.0% $ 9,111,000 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The above information assumes that $0.25 of the Unit price is
attributable to the Warrant and excludes (a) Units issuable upon the exercise of
the Underwriters' over-allotment option, (b) shares of Common Stock issuable
upon exercise of the Managing Underwriter's Warrants and (c) an aggregate of
871,143 shares of Common Stock issuable upon the exercise of conversion rights,
options and warrants outstanding as of December 31, 1996 with a weighted average
exercise price of $1.70 per share. To the extent that rights to acquire Common
Stock of the Company are exercised, there will be further dilution to new
investors. See "Management--Stock Option Plans," "Description of Securities--The
Warrants Offered," "--Other Warrants and Convertible Notes," and Note E of Notes
to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The data set forth below with respect to the balance sheets as of
December 31, 1995 and 1996 and the related statement of operations for the three
years ended December 31, 1994, 1995 and 1996 have been derived from the
Company's audited financial statements. The data should be read in conjunction
with the Financial Statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus. The historical results are not necessarily
indicative of the results of operations to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Licensing and option revenue........................................... $ -- $ -- $ 180,000
Interest income........................................................ 3,954 2,535 11,032
----------- ----------- -----------
Total revenue........................................................ 3,954 2,535 191,032
Expenses:
Research and development............................................... 199,654 131,842 199,516
General and administrative............................................. 323,613 255,592 358,833
Amortization expense................................................... 1,049 1,049 2,964
Interest expense....................................................... 2,645 31,201 33,110
----------- ----------- -----------
Total expenses....................................................... 526,961 419,684 594,423
----------- ----------- -----------
Net loss............................................................... $ (523,007) $ (417,149) $ (403,391)
----------- ----------- -----------
----------- ----------- -----------
Net loss per share (1)................................................. $ (.14) $ (.11) $ (.10)
Weighed average number of shares outstanding (1)....................... 3,660,514 3,784,623 4,185,555
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, ----------------------------
1995 ACTUAL AS ADJUSTED(2)
------------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents.............................................. $ 246,721 $ 1,254,250 $ 6,553,415
Working capital.................................................... 34,798 955,071 6,254,236
Total assets....................................................... 248,382 1,477,763 6,557,763
Notes payable...................................................... 204,400 -- --
Deferred credit.................................................... -- 180,000 180,000
Total stockholders' equity (deficit)............................... $ (167,941) $ 998,584 $ 6,078,584
</TABLE>
- ------------------------
(1) In each case, gives effect to a 3 1/3 to 1 reverse stock split effective
December 20, 1996.
(2) Gives effect to the sale of 1,200,000 Units offered by the Company hereby,
after deducting the underwriting discount and offering expenses, at an
assumed initial public offering price of $5.25 per Unit.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S FUTURE RESULTS MAY DIFFER
CONSIDERABLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Since its founding in July 1992, the Company has been engaged in the
development, through agreements with research institutions and pharmaceutical
companies, of pharmaceutical and diagnostic products for age-related
neurodegenerative diseases. To date, the Company has not had any revenue from
the sale of products and does not expect to generate any revenue from product
sales in the foreseeable future. The Company's accumulated deficit was
$1,775,852 as of December 31, 1996.
The Company has financed its operations through the sale of Common Stock
and Convertible Notes and from option and license fees received from Athena
Neurosciences ("Athena") and Cephalon, Inc. ("Cephalon"). The Company has raised
a total of $1,665,000 from the sale of Common Stock in three private placement
offerings resulting in gross proceeds as follows: $640,000 in 1992, $475,000 in
1995 and $550,000 in 1996. The Company issued Convertible Notes in 1994 and
1995, which provided gross proceeds to the Company of $210,000. In 1996, the
Company recognized $180,000 in revenue under its option and license arangements.
As of December 31, 1996, the Company had incurred a cumulative net loss of
$1,775,852 and expects to incur substantial additional operational losses in the
future.
In February 1996, the Company entered into a letter of intent with
Cephalon in conjunction with which the Company received a one-time payment of
$20,000 in exchange for a license option.
In April 1996, the Company entered into an exclusive License and
Collaboration Agreement with Athena, which became a wholly-owned subsidiary of
Elan Corporation plc ("Elan") as of July 1, 1996, for the development of certain
estrogen compounds for chronic neurodegenerative diseases, such as Alzheimer's
disease. During the term of the Athena agreement, Athena is obligated to pay the
Company yearly license fees. In addition, Athena is obligated to pay the Company
royalties based on future sales of products covered by the agreement. Athena is
also obligated to pay certain research and development expenses and costs
associated with performing clinical trials.
In October 1996, the Company entered into an agreement with Cephalon on
a non-exclusive basis for the license of intellectual property related to
vitamin-D compounds for the treatment of neurodegenerative diseases. Cephalon is
obligated to pay the Company yearly license fees that increase if the patent
covering this technology is issued. The yearly maintenance fee also increases if
Cephalon files for regulatory approval for one or more products covered by this
technology. Cephalon is also obligated to pay the Company royalties based on
future product sales.
In June 1994, the Company entered into an agreement with Endocon (the
"Endocon Agreement") to co-develop certain estrogens within subcutaneous drug
delivery vehicles. As currently in effect, the Endocon Agreement focuses on the
development of 17b-estradiol in a subcutaneous drug delivery vehicle for the
treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon
is obligated to pay the other for any rights to intellectual property underlying
their agreement or for development of the product. The Company and Endocon are
currently in discussions regarding the execution of a license agreement for
NEURESTROL which will supersede the Endocon Agreement, but which the Company
expects will have no material effect on the results of operations or liquidity
of the Company.
22
<PAGE>
Robert J. Leonard, a member of the Board of Directors, Vice President
and shareholder of the Company, is the acting Chief Executive Officer of
Endocon. Mr. Leonard will be excluded from acting on behalf of the Company in
the negotiation and approval of any new license agreement with Endocon.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company had licensing and option revenues of $180,000 in 1996 as a
result of the Company's agreement with Athena and payments from Cephalon vs. no
revenues during the corresponding period for 1995. Total expenses were $594,423
in 1996, compared to $419,684 for 1995. The increase in operating expenses was
principally due to an increase in general and administrative expenses of
$103,241 or 40.4%, resulting primarily from increases in patent prosecution
expenses associated with the filing of several patent applications and increased
consulting and payroll costs.
Research and development expenses in 1996 were $199,516 compared to
$131,842 in 1995. The increase in research and development expenses of $67,674,
or 51.3%, was attributable to increased spending on sponsored research.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
There were no licensing and option revenues in the years ended December
31, 1995 and 1994. Total expenses were $419,684 in 1995, compared to $526,961 in
1994. Total expenses decreased $107,277 or 20.4%, primarily due to a decrease in
general and administrative expenses of $68,021 or 21.0% associated with a
decrease in legal and patent expenses of approximately $56,000 due to reduced
activity. Research and development expenses decreased by $67,812 or 34.0%,
primarily due to a decrease in sponsored research expenses of approximately
$56,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
private placements of Common Stock and Convertible Notes. From its inception
through December 31, 1996, the Company raised approximately $1,875,000 in total
proceeds from these private placements.
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the
general partner, purchased 214,287 shares of the Company's Common Stock,
representing approximately 5.1% of the Company's outstanding Common Stock at
December 31, 1996, for $500,000.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP pursuant to which NPLP paid the Company an additional
$500,000 in exchange for the issuance by the Company of warrants to purchase
Common Stock, a stock conversion privilege and the agreement by the Company to
pay NPLP royalties based upon a certain percentage of the revenues earned from
sales of, and license fees and other revenues received by the Company in
connection with, estrogen products in certain applications. The value assigned
to the warrants and the stock conversion privilege was $320,000 and was
recognized as an addition to stockholders' equity. The value of the right to
receive a certain percentage of future royalties was recorded as a deferred
credit.
In connection with foregoing transactions, Michael J. Callaghan, a
principal of MDS, became a member of the Board of Directors of the Company.
At the time of the foregoing transactions with NPLP, all of the
Company's outstanding Convertible Notes, in the aggregate amount of $75,000,
were converted into an aggregate of 75,000 shares of Common Stock.
On December 31, 1996, the Company's cash and cash equivalents totaled
$1,254,250.
23
<PAGE>
The Company's future cash requirements will depend on many factors,
including the speed and progress of the Company's product development programs,
the scope and results of clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patents, competing technological and market developments and the cost
of product commercialization. For the foreseeable future, the Company's cash
requirements will exceed its revenues. The Company intends to seek additional
funding through agreements with suitable corporate collaborators and through
public or private financing. There are no assurances that strategic alliances,
or any public or private financing, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its product development
programs.
The Company estimates that its existing capital resources, including the
net proceeds of this offering and interest thereon will be sufficient to fund
its current and planned operations through approximately March 1999. There can
be no assurance, however, that changes in the Company's product development
plans or other changes affecting the Company's operating expenses will not
result in the expenditure of these resources before such time.
24
<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
CONSIDERABLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a
development-stage company which is engaged in the development, through
agreements with research institutions and pharmaceutical companies, of
proprietary drugs that protect brain cells from damage caused by disease, injury
and aging. The Company's target applications include the treatment of
Alzheimer's disease, Parkinson's disease, brain damage resulting from stroke and
other age-related diseases and conditions. The Company's lead product candidates
are based on naturally-occurring hormones that have been demonstrated by
Company-sponsored research to protect brain cells from damage caused by disease,
trauma and aging. The Company's major product initiatives are based on estrogen
compounds, calcitriol or vitamin D-related compounds and other types of
neurosteroids.
ABPI-124 and NEURESTROL-REGISTERED TRADEMARK-, two of the Company's lead
product candidates, are in development by the Company and its partners for the
prevention of neurodegeneration in Alzheimer's disease. ABPI-124 is a type of
estrogen that the Company's management believes will be useful in preventing
brain cell death without inducing feminizing side effects (e.g. breast
enlargement) and therefore could be used to treat men as well as women.
NEURESTROL is an estrogen-based, subcutaneous implant in development for the
long-term, controlled delivery of estrogen in a single dose for the treatment of
Alzheimer's diesease. NEURESTROL is the subject of an Investigational New Drug
Application for Phase I testing in humans. An additional product candidate,
NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a
small number of patients with Alzheimer's disease in a trial funded by the
National Institutes of Health at the University of Kentucky Medical School. The
Company continues to sponsor testing of these as well as other potentially
neuroprotective compounds for efficacy in the treatment of other
neurodegenerative conditions such as Parkinson's disease, Age-Related Memory
Impairment and brain-cell death from stroke. In addition to its pharmaceutical
product candidates, the Company is also currently evaluating a Hormone
Responsiveness Diagnostic test that may predict responsiveness to hormone
therapy.
Development of the Company's products to date has been based, in large
part, on intellectual property it has licensed from, and research it has
sponsored at, the medical schools of two universities. The Company intends to
continue to acquire licenses to intellectual property that could advance the
Company's product development efforts. Two patents licensed exclusively to the
Company have recently been issued in the United States. The first patent covers
the use of estrogen compounds for neuroprotection in the treatment of certain
diseases, including Alzheimer's disease, and the second patent covers the
Company's Hormone Responsiveness Diagnostic test.
The Company's commercialization strategy is to enter into strategic
alliances with biotechnology and pharmaceutical companies for the development
and marketing of its product candidates. The Company currently has strategic
alliances with Athena Neurosciences, Inc. ("Athena"), for the development of
estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc.
("Endocon"), for the joint development of NEURESTROL. Mr. Robert J. Leonard, a
member of the Board of Directors, Vice President and shareholder of the Company,
is the acting Chief Executive Officer of Endocon. The Company plans to seek
additional strategic partners for the development of its product candidates.
25
<PAGE>
BACKGROUND
INTRODUCTION
The human brain contains some 10 billion cells known as neurons, each of
which has connections with many other neurons. Sensory, motor and cognitive
activities are all governed by this complex network of brain cells each member
of which communicates with other neurons across junctions known as synapses.
Communication between neurons involves chemical "messengers" known as
neurotransmitters, which are released by the sending neuron and bind to
corresponding receptors on the receiving neuron after crossing a synapse. In
many neurodegenerative diseases like Alzheimer's and Parkinson's, this
communication malfunctions, largely as a result of brain cell death.
The treatment of many diseases is facilitated by cell regeneration, a
natural component of human healing. However, in the highly complex realm of
neurological diseases, treatment is more difficult because brain cells do not
naturally regenerate. Currently available drugs for the treatment of some
neurological disorders act by increasing or replacing supplies of some
neurotransmitters. The benefits realized from these drugs are limited, however,
because the eventual loss of brain cells, without regeneration, means there are
fewer brain cells for neurotransmitters to activate. The Company's proposed
products are intended to prevent the deterioration and death of these brain
cells.
BRAIN CELL LOSS DURING AGING
Neurons do not multiply after birth. As adults age, the number of brain
cells decreases as cells die and are not regenerated, even in the absence of
disease. The rate of brain cell loss varies from individual to individual. The
genetic or environmental causes that determine the rate of brain cell loss
during aging are unknown. The progressive and cumulative effect of brain cell
loss over a prolonged period results in many physiological changes and
short-term memory loss.
There is evidence suggesting that almost everyone who lives long enough
is subject to some form of age-related disease, such as Alzheimer's or
Parkinson's, each of which is generally associated with brain cell loss in
different regions of the brain. The prevalence of many neurodegenerative
diseases increases with aging. Scientific studies have shown that, although less
than 5% of individuals below age 65 have Alzheimer's disease, this prevalence
increases almost exponentially over age 65, with the result that as many as 50%
of individuals over 85 years of age may have Alzheimer's disease to some extent.
Thus, aging itself is a major risk factor for many types of neurodegenerative
diseases.
The following table summarizes physiological changes in various parts of
the brain in both normal and disease-related situations.
26
<PAGE>
<TABLE>
<CAPTION>
BRAIN CELL LOSS AND OTHER DEGENERATIVE CHANGES
THAT OCCUR IN AGING AND CERTAIN DISEASES
NORMAL CHANGES DURING
BRAIN REGION AGING ALZHEIMER'S DISEASE PARKINSON'S DISEASE
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Hippocampus and -Loss of neurons in -Extensive neuron
Amygdala subiculum degeneration/death
-Some other loss neuron or -Extensive amyloid
shrinkage plaques and
-Few amyloid plaques neurofibrillary tangles
-Few neurofibrillary
tangles
Cerebral Cortex -Large neurons shrink or -Neurons die -Lewy bodies
die -Extensive amyloid
-Few amyloid plaques plaques
-Few neurofibrillary -Extensive
tangles neurofibrillary tangles
Basal Forebrain -Shrinkage of neurons -Loss of cholinergic -Some loss of cholinergic
-Decline in acetylcholine neurons neurons
content -Extensive loss of
acetylcholine
Substantia Nigra -Gradual loss of dopamine -Extensive loss of
and Basal (DA) neurons in DA neurons in substantia
Ganglia the substantia nigra nigra
-Gradual decline of DA -Lewy bodies
receptors in basal ganglia
Locus Coeruleus -Significant but gradual -Loss of neurons in -Loss of
loss of neurons with some cases neurons
aging -Lewy bodies
Note: See glossary for technical definitions.
</TABLE>
HORMONAL CHANGES DURING AGING
The brain controls the output of certain hormones, including estrogen,
which in turn controls the function of many different organs in the human body.
Many neuroendocrine hormones (e.g., growth hormone, estrogen and progesterone)
undergo age-related declines which can lead to deterioration of tissues and
organs and the malfunctioning of major organ systems. These include the thymus,
kidneys, cardiovascular system, muscle and bone. Recent studies have shown that
hormone replacement therapy can be used to bypass, and even reverse, the
degenerative effects of these dwindling hormones. For example, estrogen
administered to postmenopausal women has been shown to protect against
osteoporosis and cardiovascular disease.
ESTROGEN AND PREVENTION OF ALZHEIMER'S DISEASE
Several clinical studies have shown that women undergoing estrogen
replacement therapy tend to be diagnosed with Alzheimer's disease about half as
frequently as women who are not taking estrogen supplements. In one study in
which the post-mortem records of 2,519 women were analyzed, there was a
significant difference in the apparent incidence of Alzheimer's disease among
women who had taken estrogen as compared to women who did not take estrogen. The
National Institutes of Health is currently
27
<PAGE>
sponsoring a study to evaluate the effectiveness of a certain
commercially-marketed estrogen product in post-menopausal women with Alzheimer's
disease.
A separate clinical study, published in 1996 in the medical journal THE
LANCET, analyzed a group of 1,124 women over a five-year period. In each year of
the study, approximately 3% of the women who took estrogen supplements developed
Alzheimer's disease, while approximately 8% of the women who did not take the
hormone developed the disease. Furthermore, the women who took estrogen and did
develop Alzheimer's disease developed it later than women who did not take
estrogen. The graph below, excerpted from the article in THE LANCET, shows the
significant difference in the age of onset of Alzheimer's disease between women
taking estrogen compared to women who did not take estrogen. Among 90 year olds,
for example, approximately 50% of the women who never took estrogen had some
form of Alzheimer's disease whereas only approximately 10% of women using
estrogen for more than one year had Alzheimer's disease. The researchers
concluded that estrogen use leads to a reduction in the incidence and a delay in
the onset of Alzheimer's disease. Management expects that the Company's
estrogen-based products will also reduce the incidence and delay the onset of
Alzheimer's disease.
[Graph showing the relative effects of estrogen at differing durations of use by
elderly women in delaying the onset of Alzheimer's disease.]
(Excerpted with permission. Graph reprinted from M-X Tang, D. Jacobs, Y. Stern,
et al., "Effect of oestrogen during menopause on risk and age at onset of
Alzheimer's disease," vol. 348, no. 9025, pp. 429-32. -C- by THE LANCET, 1996.)
BUSINESS STRATEGY
STRATEGIC FOCUS ON HORMONES AND NEUROPROTECTION
The Company's overall business strategy is to identify and develop
neuroprotective products that are based on substances produced by the human
body. The Company's lead product candidates are based on hormones such as
estrogens which have been demonstrated by the Company's sponsored research to
protect brain cells from the damage caused by disease, trauma or aging. The
Company is developing and evaluating a number of products for the treatment of
Alzheimer's disease, Parkinson's disease and brain damage resulting from stroke.
By understanding the mechanisms by which these substances protect brain cells
from death and damage, the Company intends to design new products which have
improved
28
<PAGE>
properties and which will be useful for treating a wide range of
neurodegenerative diseases. The Company's lead product candidates are currently
in various stages of development.
ACQUISITION AND LICENSING OF INTELLECTUAL PROPERTY
The Company has acquired and plans to continue to acquire proprietary
rights to intellectual property and technologies which have been developed at
universities and other research institutions. In exchange for exclusive
licenses, the Company has sponsored several research programs at the University
of Florida School of Medicine and the University of Kentucky School of Medicine.
See "--Intellectual Property Rights." To date, all of the Company's basic
research has been conducted in academic laboratories through sponsored research
programs. The Company has also outsourced most of its regulatory and clinical
development activities. The Company's strategy has been to use outside resources
for research and development activities in order to minimize fixed costs and
preserve capital. Although the Company plans to lease a small laboratory
facility in the future, it intends to continue this outsourcing strategy in
order to preserve its capital. See "Use of Proceeds."
PRODUCT COMMERCIALIZATION THROUGH STRATEGIC ALLIANCES
The Company does not intend to become a fully-integrated pharmaceutical
company combining marketing, sales, manufacturing and regulatory capabilities.
Rather, the Company's strategy is to enter into strategic alliances with
biotechnology and pharmaceutical companies that have the technological
resources, operational expertise or financial resources that will aid in the
development and sale of the Company's products. The Company has entered into two
strategic alliances to date: (i) Athena, for the development of certain estrogen
compounds for chronic neurodegenerative diseases; and (ii) Endocon, for the co-
development of NEURESTROL. There can be no assurance that either of these
alliances will result in the development of any products. See "--Strategic
Alliances and Licenses."
PRODUCTS IN DEVELOPMENT
The Company's lead product candidates, which are based on hormones such
as estrogen, are designed to protect brain cells from the damage caused by
disease, trauma or aging. The predominant circulating form of estrogen in the
body is 17b-estradiol, which is produced primarily by the ovaries. Only small
amounts of 17b-estradiol are produced in women after menopause. Men of all ages
have small amounts of circulating estrogen produced by the conversion of male
hormones. Estrogen is used by many women following the menopause in hormone
replacement therapy to treat hot flashes, and to protect against osteoporosis
and cardiovascular disease. In the United States, an estrogen product known as
Premarin, produced from the urine of horses, is widely used. Several clinical
studies have indicated that estrogen use may reduce the incidence and delay the
onset of Alzheimer's disease. Even though none of the Company's estrogen-based
product candidates has been tested in humans with respect to neuroprotection,
management believes that the potential effectiveness of the Company's products
is supported by reported results of research conducted by others on similar
compounds. See "--Estrogen and the Prevention of Alzheimer's Disease."
The following table summarizes the Company's most advanced product
candidates currently in development, along with the disease targets, strategic
partners and commercial rights associated with each product candidate. In the
future, the Company may choose to evaluate these product candidates for the
treatment of other diseases or for prophylaxis of certain neurodegenerative
diseases. All information presented in this table is qualified by more detailed
descriptions presented elsewhere in this Prospectus.
29
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
STRATEGIC PARTNERSHIP
PROGRAM/LEAD ------------------------------------
COMPOUND(1) DISEASE TARGET DEVELOPMENT STATUS(2) COMMERCIAL RIGHTS RELATIONSHIP
- ----------------------- --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
ESTROGEN COMPOUNDS
ABPI-124 -Alzheimer's disease Lead candidate(3) Athena Exclusive license
-Parkinson's disease Planning(4) Athena Exclusive license
-Other chronic Planning(4) Athena Exclusive license
neurodegenerative
diseases
-Stroke and other acute Research(5) Athena Right of first
neurodegenerative refusal for
diseases exclusive license
NEURESTROL -Alzheimer's disease IND filed(6) Apollo/Endocon Co-development
-Parkinson's disease IND filed Apollo/Endocon Co-development
-Age-Associated Memory IND filed Apollo/Endocon Co-development
Impairment
CALCITRIOL-RELATED
COMPOUNDS
NEUROCALC -Alzheimer's disease Physician's Phase Apollo(9) (10)
I(7)
OTHER VITAMIN D -Alzheimer's disease Research Apollo(9) (10)
COMPOUNDS
-Other chronic Planning Apollo(9) (10)
neurodegenerative
diseases
OTHER NEUROSTEROIDS -Chronic neuro- Research Apollo (10)
degenerative diseases
-Acute neuro-
degenerative diseases
HORMONE RESPONSIVENESS -Determination of Clinical testing(8) Apollo (10)
DIAGNOSTIC responsiveness
</TABLE>
- ------------------------------
(1) Patent applications have been filed in the United States and in various
countries with respect to each Program/Lead Compound. Patents have been
issued on the use of estrogen compounds, the Endocon drug delivery
technology used in Neurestrol, and the Hormone Responsiveness Diagnostic.
See "Intellectual Property Rights."
(2) Each of the Company's lead compounds which is a new drug must undergo
several steps in order to receive the regulatory approval necessary for it
to be manufactured and marketed. Such steps generally include, in
chronological order (i) the conducting of preclinical laboratory and animal
tests with the lead compound; (ii) submission to the FDA of an IND covering
the lead compound (which IND must be approved by the FDA before human
clinical trials may start); (iii) performance of human clinical trials on
the lead compound (typically, human clinical trials are conducted in three
steps: Phase I (the testing of the lead compound in a small number of
healthy human subjects); Phase II (testing of the lead compound with groups
of patients afflicted with a specific disease or condition); and Phase III
(large-scale, multi-center comparative trials); and (iv) submission to FDA
of an NDA covering the lead compound, which NDA must contain the results of
the preclinical and clinical trials as well as information on product
composition and manufacturing processes. The NDA must be approved by the FDA
before commercial marketing of the lead compound may begin.
(3) "Lead candidate" means that a particular compound (or compounds) has been
selected for further preclinical study, based on positive results from one
or more IN VITRO or IN VIVO disease models.
(4) "Planning" means that the disease target is being assessed by the Company
for potential future research and clinical activities.
30
<PAGE>
(5) "Research" means that research is underway by the Company to synthesize
and/or select compounds for further development.
(6) "IND filed" means that an Investigational New Drug Application has been
submitted to the FDA to initiate human testing. This IND was co-sponsored by
Endocon and the Company. Phase I dosing studies on female volunteers is to
be conducted at the National Institutes of Health (NIH).
(7) "Physician's Phase I" means that a Phase I human trial is being conducted
based on a Physician's IND. In the case of NEUROCALC, the Physician's IND
was filed by an independent physician and a small NIH-funded study is
underway in humans at the University of Kentucky School of Medicine.
(8) "Clinical testing" means that, in the case of the Company's diagnostic
initiative, the Hormone Responsiveness Diagnostic test has been, and
continues to be, evaluated using blood samples from human volunteers.
(9) The Company has sublicensed to Cephalon, on a non-exclusive basis, certain
of the Company's rights to its intellectual property in the vitamin-D area
for neuroprotection. See "--Strategic Alliances and Licenses."
(10) The Company will evaluate the potential for sublicensing these potential
products and programs to corporate partners in the future, as appropriate.
31
<PAGE>
The Company's product candidates are hormones or compounds similar in
structure to known hormones, including estrogen, as well as compounds based on
vitamin D, which are able to penetrate the blood-brain barrier due to their
physical characteristics. The blood-brain barrier is a physical structure formed
by a tight network of cells which separates the brain from the circulatory
system and which restricts the passage of most molecules into the brain.
Normally, access to the brain occurs only through the circulation of blood.
Large proteins, such as nerve growth factor and other neurotrophic factors,
cannot gain access through the blood-brain barrier on their own. While the
blood-brain barrier serves to protect the brain from being exposed to
potentially harmful compounds, it makes delivery of pharmaceutical drugs
extremely difficult, requiring either a short-term breakdown of the barrier, the
physical placement of a shunt through the skull for the direct delivery of drugs
or the use of a chemical carrier system. These procedures are difficult to
implement and can be risky or invasive. Inaccessibility of the brain due to the
blood-brain barrier has greatly limited drug development for the treatment of
diseases of the central nervous system. The Company's product candidates are
expected to diffuse to the brain through the blood-brain barrier.
ESTROGEN COMPOUNDS
Estrogens are believed to act directly on brain cells to reduce the
incidence and to delay the onset of Alzheimer's disease. Estrogens readily enter
the brain and interact with brain cells to provide neuroprotection. Estrogens
have been shown to be highly neuroprotective in situations where brain cell
viability is compromised by trauma, or by glucose or oxygen deprivation.
Activation of estrogen receptors at other sites in the body causes cell growth
in the breast, the uterus and the endometrium. Currently, the use of estrogen
therapy is not recommended for men due to its feminizing side effects (e.g.
breast enlargement), or for certain women because of a history of breast cancer
or because of some women's intolerance to the hormonal side effects of
estrogens. Discoveries resulting from the Company's sponsored research indicate
that it is possible for estrogens to act on brain cells through a novel
mechanism that does not require the estrogen to bind to its normal receptor.
Management believes that this mechanism would result in fewer hormonal side
effects. This novel approach should enable the Company to design and evaluate a
variety of estrogens that lack sex hormone activity and therefore will be useful
in the treatment of men, as well as women.
The Company's lead product candidates in this area are ABPI-124 and
NEURESTROL. Both products are in development primarily to treat
neurodegeneration associated with Alzheimer's disease. ABPI-124 is a trademark
of the Company representing certain novel estrogens for use in the prevention of
neurodegeneration. ABPI-124 is being developed by the Company together with
Athena for the treatment of Alzheimer's disease. See "--Strategic Alliances and
Licenses." ABPI-124 has been shown by the Company's sponsored research to
protect brain cells, while it is not known to interact with other tissues.
Management believes that ABPI-124 and related products will have specificity for
the central nervous system and therefore will have fewer side effects than
compounds which are active as sex hormones. The Company and Athena are currently
evaluating ABPI-124 and other compounds in Athena's proprietary animal model for
Alzheimer's disease. The Company is the exclusive licensee of a broad patent
recently issued in the United States covering the use of estrogen in the
prevention of neurodegeneration, including the treatment of Alzheimer's disease.
NEURESTROL is the brand name for 17b-estradiol formulated within
Endocon's bioerodible implant for the treatment of women with neurodegenerative
diseases, such as Alzheimer's. NEURESTROL is delivered in the form of a small
pellet, inserted into the underside of a patients' forearm, which is capable of
the sustained release of an active drug for in excess of one year. Because the
pellet is fully bioerodible, there is no need for its retrieval. This type of
formulation is expected to greatly increase patient compliance and will relieve
a burden currently placed on caregivers of patients undergoing long-term
therapy. The Company and Endocon have agreed to co-develop NEURESTROL. See
"--Strategic Alliances and Licenses." The Company and Endocon have submitted an
IND for NEURESTROL to the FDA in order to begin Phase I
32
<PAGE>
dosing studies on female volunteers at the National Institutes of Health.
NEURESTROL is the subject of intellectual property licensed to the Company on
the use of estrogens for neuroprotection and numerous Endocon patents related to
the proprietary delivery system. See "--Intellectual Property Rights."
CALCITRIOL-RELATED COMPOUNDS
As people age, develop neurodegenerative disease or are subjected to
injury, their brain cells tend to accumulate calcium in greater quantities than
brain cells of young, healthy people. This is due, in part, to the inability of
aged, diseased or injured brain cells to extrude calcium efficiently. Calcium
accumulation in brain cells, especially over long periods of time, can make
brain cells increasingly vulnerable to certain environmental factors and can
lead to brain cell death. Levels of calcium in the body are regulated by complex
interactions of a number of "calcitropic" hormones, including calcitriol. In
aging and neurodegenerative diseases, such as Alzheimer's, these hormones can
become inappropriately regulated. Several studies have indicated that
Alzheimer's patients have low vitamin-D levels. Low serum calcium and
phosphorous levels (which are indicative of low vitamin-D activity) are believed
to precede the onset of Alzheimer's disease symptoms. Calcitriol, the active
metabolite of vitamin D, is an extremely potent hormone that regulates calcium
and phosphorous levels. NEUROCALC is the Company's brand name for calcitriol.
The Company's academic partners have demonstrated that animals treated with
calcitriol for 8-12 months show significant neuroprotection and a greater
density of brain cells than animals without calcitriol administration.
A small-scale human trial sponsored by the National Institutes of Health
is underway at the University of Kentucky School of Medicine to evaluate the
therapeutic effectiveness of NEUROCALC in deterring the long-term progression of
Alzheimer's disease.
The Company has plans to produce its own and/or license from other
companies or research institutions certain novel vitamin-D compounds and
evaluate these compounds for efficacy in the treatment of neurodegenerative
disorders. If any of these compounds are identified, the Company may further
test these compounds in humans. In addition, the Company has entered into a
non-exclusive license relationship with Cephalon pursuant to which the Company
has licensed to Cephalon certain of its intellectual property in this area. See
"--Strategic Alliances and Licenses." The Company may choose to issue additional
licenses to its intellectual property in this field.
ADDITIONAL COMPOUNDS IN DEVELOPMENT
Neurosteroids are a class of steroidal compounds located in the central
nervous system that have a wide range of effects on brain cells. The Company has
sponsored research to design and produce a number of additional neurosteroid
compounds in order to test their ability to protect against brain cell death. A
library of approximately 40 compounds has been synthesized in connection with
the Company's sponsored research. These include certain compounds derived from
adrenal steroids such as dehydroepiandrosterone (DHEA) (which has been shown in
animal studies to have memory-enhancing effects) and dehydroepiandrosterone
sulfate (DHEAS). Research sponsored by the Company indicates that certain
structural properties of a number of other neurosteroids can predict their
neuroprotective activity, which could assist the Company in the design of
additional compounds and new product candidates. The Company and the University
of Florida School of Medicine have two patents pending in this area.
HORMONE RESPONSIVENESS DIAGNOSTIC
Estrogen replacement therapy is currently being used by millions of
women worldwide for the treatment of menopausal symptoms, including hot flashes,
and to protect against osteoporosis and cardiovascular disease. Despite its
widespread use, estrogen replacement therapy is currently prescribed without
information as to whether the treatment will be effective and as to the optimal
dosages for individual patients. There is a need for tools which can better
determine appropriate treatment guidelines.
33
<PAGE>
The Company is developing a Hormone Responsiveness Diagnostic test, a
proprietary diagnostic blood test that predicts how well patients will respond
to hormone therapy. To date, clinical evaluation of the test has been conducted
with approximately thirty people of both sexes and of various ages. The Company
plans to expand this testing significantly. A United States patent has recently
been issued on this diagnostic test and has been licensed to the Company on an
exclusive basis. Management expects that information derived from this
diagnostic test will aid clinicians in designing rational long-term hormonal
treatment protocols.
STRATEGIC ALLIANCES AND LICENSES
ATHENA NEUROSCIENCES, INC.
In April 1996, the Company entered into a License and Collaboration
Agreement with Athena (the "Athena Agreement") in which the Company granted to
Athena an exclusive, worldwide license (with the right to sublicense), under
certain of the Company's patent rights, to develop and commercialize certain
estrogen compounds for the treatment of chronic neurodegenerative diseases
(i.e., those with a treatment duration of six months or more), including
Alzheimer's disease. Athena also has the first right to fund any proposal of the
Company for acute indications in exchange for an exclusive license. These rights
are exercisable on a case-by-case basis. Under the Athena Agreement, research
and product development is managed by a joint committee with two representatives
from each company.
The Athena Agreement provides for the payment by Athena of an annual
maintenance fee until an NDA is approved for a product incorporating a licensed
compound, after which Athena will pay a royalty based on Athena's direct net
sales. The Company would also receive a portion of any income Athena receives
from fees and sales of licensed products by Athena's sublicensees. Athena has
the responsibility to fund all research and clinical expenses approved by the
joint committee and to undertake reasonable efforts to develop estrogen products
under its license, and will receive a credit against royalties for its research
and development expenses. Athena may terminate the agreement at any time, in its
sole discretion, upon 90 days' written notice.
ENDOCON, INC.
In June 1994, the Company entered into an agreement with Endocon (the
"Endocon Agreement") to co-develop certain estrogens within subcutaneous drug
delivery vehicles. As currently in effect, the Endocon Agreement focuses on the
development of 17b-estradiol within a subcutaneous drug delivery vehicle for the
treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon
is obligated to pay the other for any rights to intellectual property underlying
the Endocon Agreement or for development of the product. The Company and Endocon
each have the right to terminate the agreement upon 60 days' notice to the other
party, provided that the terminating party will grant an exclusive, fully-paid
license to the non-terminating party to continue to develop and market
NEURESTROL independently.
The Company and Endocon are currently in discussions regarding the
execution of a license agreement for NEURESTROL which will supercede the Endocon
Agreement.
Robert J. Leonard, a member of the Board of Directors, Vice President
and shareholder of the Company, is the acting Chief Executive Officer of
Endocon. Mr. Leonard will be excluded from acting on behalf of the Company in
the negotiation or approval of any new license agreement with Endocon.
CEPHALON, INC.
In November 1996, the Company entered into a Nonexclusive Sublicense
Agreement with Cephalon (the "Cephalon Agreement") in which certain rights to
its intellectual property in the vitamin-D area (see "--Calcitriol-Related
Products") for neuroprotection were licensed on a non-exclusive basis to
Cephalon. Under the Cephalon Agreement, the Company will receive annual
maintenance payments,
34
<PAGE>
which escalate upon the achievement of certain milestones, and a royalty based
on product sales including a minimum royalty.
THERAPEUTIC TARGET MARKETS
THE AGING POPULATION AND DISEASE MANAGEMENT
During the national debate on the reform of the health care system in
the United States, major pharmaceutical companies studied outcomes data on
non-pharmaceutical interventions, i.e. hospitalization, earliest possible
release dates, readmittances and long-term care (nursing homes and
rehabilitation facilities). These studies showed that an integrated approach to
broad areas of disease management would result in both superior outcomes as well
as greater profitability than earlier industry paradigms. Accordingly,
pharmaceutical companies have sought to develop and license a range of
diagnostic and pharmaceutical interventions that could result in shorter
hospital stays and reduced reliance on long-term in-patient care of the aging
population. Cognitive problems and the incidence of Alzheimer's disease increase
with age and thereby put the patient at considerable risk of mismedication,
falls and generally poor attention to personal health matters--all resulting in
increased hospital admittances and protracted long-term in-patient care.
Management believes that the Company's therapeutic and diagnostic
product candidates could become significant tools in neurodegenerative disease
management and address significant market opportunities. As the population ages
and baby boomers reach retirement age the number of people with one or more
neurodegenerative disease is expected to increase exponentially.
ALZHEIMER'S DISEASE
Alzheimer's disease is a complex neurodegenerative disease characterized
by brain atrophy. The progression of the disease always leads to memory loss and
dementia. The course of Alzheimer's disease typically runs eight or more years
and results in death. The earliest sign of the disease is an impairment in
short-term memory and intellectual ability. Over the course of the disease,
memory loss becomes severe, ability to reason deteriorates, and patients become
depressed, agitated, irritable and restless. In the final stages of the disease,
patients become unable to care for themselves and frequently require long-term
care in nursing homes.
Alzheimer's disease is directly correlated to aging. Less than 5% of
persons between the ages of 60 and 65 have the disease, while approximately 50%
of persons over the age of 85 have the disease. According to the National
Alzheimer's Association, over four million Americans currently suffer from
Alzheimer's disease and the direct costs associated with their diagnosis,
treatment and care is approximately $100 billion per year. The prevalence of
this disease is expected to increase to 14 million persons in the United States
by the year 2050. There is no treatment currently available to slow the
progression of the disease.
PARKINSON'S DISEASE
Parkinson's disease is associated with trembling of the arms and legs,
stiffness and rigidity of muscles and slowness of movement. These symptoms are
caused by a chemical imbalance in the brain caused by the loss of key brain
cells. Parkinson's disease is characterized by neuron loss in the substantia
nigra and the locus coeruleus regions of the brain. Parkinson's disease can
cause depletion of 70% or more of the cells in these regions.
Approximately 10% of patients with Parkinson's disease also experience
dementia. The American Academy of Neurology estimates that there are
approximately 1,000,000 persons afflicted with Parkinson's disease in the United
States. The total direct health care costs in the United States have been
estimated to be $340 million annually. Although there are a number of
pharmaceuticals in use today to treat Parkinson's
35
<PAGE>
disease, their effects are only temporary and none can treat the underlying
neurodegeneration associated with the disease.
STROKE
Most strokes are caused by blockage of critical blood vessels leading to
the brain. This causes a reduction in blood flow to the brain and results in
deprivation of oxygen in the affected regions ("ischemia"). Ischemia, in turn,
leads to the death of brain cells. Brain cell death following stroke is the
major cause of stroke-related disability, including paralysis, impaired
cognition and loss of sensation.
Stroke is a leading cause of morbidity and mortality in the United
States. According to the American Heart Association (the "AHA"), approximately
500,000 persons in the United States have new or recurrent strokes each year.
While 30% of stroke victims die within a year, the AHA estimates that there are
3,820,000 stroke survivors in the United States today. Many stroke survivors
suffer stroke-related crippling disabilities and require long-term care at
enormous cost. The American Academy of Neurology estimates that $30 billion is
spent annually in the United States on stroke-related hospital, physician and
rehabilitation expenses. Currently, there are no products available that
minimize stroke-related brain damage.
ACUTE NEUROLOGICAL INJURY
Acute neurological injury can result from decreased blood flow to the
brain during cardiac surgery as well as from hypoglycemia (brain glucose
deficiency) and trauma (injury). In each case, the injury can lead to damage or
to the death of brain cells. The death of brain cells is largely due to the
deprivation of oxygen, as in stroke.
Between 400,000 and 500,000 people in the United States undergo coronary
bypass operations each year. Approximately 10% of coronary by-pass patients
suffer neurological side effects due to occlusion (blockage) of small blood
vessels leading to the brain and brain damage ranging from minor cognitive
deficits to debilitation. Trauma due to brain or spinal injury is also a major
cause of morbidity in the United States, afflicting over 500,000 persons
annually. Brain cell death and brain damage caused by recurrent and untreated
hypoglycemia is less well characterized but is estimated to occur in about
100,000 persons annually in the United States. Currently, there are no
therapeutic products on the market to prevent, treat or limit damage in acute
neurological injury.
AGE-ASSOCIATED MEMORY IMPAIRMENT
Age-Associated Memory Impairment (AAMI) is an age-associated disorder
that is characterized by memory loss in otherwise healthy, elderly individuals.
Persons with AAMI experience a gradual decline in the ability to perform the
tasks of daily life dependent on memory, as compared to the overall population
of same-aged individuals. Age-related memory loss is frequently described as
"normal." Presently the causes of AAMI are not well understood. However, brain
cell death with aging has been reported to occur in certain regions of the brain
implicated in memory. Currently, there is no pharmacological treatment for AAMI.
Although several classes of experimental drugs have been proposed in the
scientific literature to treat AAMI, none has proved efficacious to date in
humans.
INTELLECTUAL PROPERTY RIGHTS
The Company is the exclusive licensee of two patents issued in the
United States, as well as a number of patent applications that are currently
pending in various countries. The Company is also the co-owner of two patent
applications which are pending. In addition, the Endocon drug delivery
technology used in NEURESTROL and licensed to the Company is the subject of 12
patents and one pending application. The Company also has exclusive options to
acquire additional licenses from the University of Florida School of Medicine
and the University of Kentucky School of Medicine related to research programs
36
<PAGE>
which have been sponsored by the Company. The Company has filed and will
continue to file patent applications in the United States and in foreign
countries throughout the world in order to protect intellectual property of its
own and intellectual property which it has licensed. The Company intends to
maintain an aggressive strategy for filing, maintaining and prosecuting its
intellectual property. The Company's success in large part will depend on its
ability to obtain patent protection in various jurisdictions relating to the
technologies, processes and products it is developing and may develop in the
future. The Company also intends to rely on trade secrets to protect certain
other technologies (e.g., animal models for aging) which may be used in
discovering and evaluating new drugs which could become marketable products. To
protect its inventions, trade secrets and other proprietary information, the
Company has confidentiality agreements in place with its staff, consultants and
scientific and clinical advisors. See "Risk Factors."
ESTROGEN COMPOUNDS
In December 1993, the Company was granted an exclusive worldwide license
from the University of Florida Research Foundation, Inc. (the "UFRFI") to
certain technology developed at the University of Florida School of Medicine
related to a method of protection against brain-cell loss using estrogen
compounds. The agreement was amended in October 1996. In consideration of the
grant of the license, the Company has funded certain research programs at the
University of Florida School of Medicine and agreed to pay a royalty based on
product sales. The Company extended its research contract through the end of
1997. A U.S. patent on this technology that has been licensed to the Company was
issued in September of 1996 and covers the use of estrogen compounds for the
treatment of neuron loss in a subject, including a subject with Alzheimer's
disease. Corresponding patent applications are pending in the United States and
several other countries throughout the world. The Company entered into an
agreement with Athena in April 1996 for the clinical development and marketing
of estrogen products for chronic neurodegenerative diseases. See "--Strategic
Alliances and Licenses."
CALCITRIOL-RELATED COMPOUNDS
In April 1993, the Company was granted an exclusive worldwide license
from the University of Kentucky Research Foundation to certain technology
developed at the University of Kentucky School of Medicine related to a method
of protection against brain-cell loss using vitamin-D derivatives and compounds
which bind the vitamin-D receptor. In consideration of the grant of the license,
the Company funded certain research programs at the University of Kentucky
School of Medicine and agreed to pay a royalty based on product sales. Patent
applications in the U.S. and foreign jurisdictions are currently pending. The
Company entered into a non-exclusive license agreement with Cephalon in November
1996 covering certain of the Company's rights in the vitamin-D area for
neuroprotection. See "--Strategic Alliances and Licenses."
HORMONE RESPONSIVENESS DIAGNOSTIC
In September 1994, the Company was granted an exclusive worldwide
license from the UFRFI to certain technology developed at the University of
Florida School of Medicine related to a method of diagnosing hormonal
responsiveness using an IN VITRO sample. In consideration of the grant of the
license, the Company has committed to pay a royalty based on product sales. A
U.S. patent was issued on this technology in August 1996 and claims a method of
diagnosis as well as the diagnostic kit itself. Corresponding patent
applications are pending in the United States and several other countries
throughout the world.
COMPETITION
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including well-known pharmaceutical
companies, that are engaged in the development of products for certain of the
applications being pursued by the Company. The Company's larger
37
<PAGE>
competitors include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb
Company, Glaxo Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion
Roussel Ltd. and Pfizer, Inc., as well as Athena. There are other public and
private companies that are also developing products to treat neurodegenerative
diseases. There may be other companies of which the Company is not aware with
product development programs similar to those of the Company. Many of the
Company's competitors have substantially greater financial, research and
development, manufacturing and marketing experience and resources than the
Company and represent substantial long-term competition for the Company. These
companies may succeed in developing pharmaceutical products that are more
effective and/or less costly than any products that may be developed by the
Company or its strategic partners. The Company is aware of two products
currently being marketed for the treatment of cognitive deficits in Alzheimer's
disease, COGNEX and ARICEPT, neither of which slows the progression of the
disease or protects brain cells. Both products are acetylcholinesterase
inhibitors and act by increasing levels of a deficient neurotransmitter.
Factors affecting competition in the pharmaceutical industry vary,
depending on the extent to which a competitor is able to achieve a competitive
advantage based on its proprietary technology. If the Company is able to
establish and maintain a significant proprietary position with respect to its
products, competition will likely depend primarily on the effectiveness of the
product and the number and severity of its unwanted side effects as compared to
alternative products.
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed drugs, new developments are expected to
continue and there can be no assurance that discoveries by others will not
render the Company's potential products noncompetitive. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. There can be no assurance that the Company will be
able to successfully achieve all of the foregoing objectives. See "Risk
Factors--Competition" and "--Development of New Technologies and Products."
MANUFACTURING PLANS
The Company has no experience in manufacturing products for commercial
purposes and has no manufacturing facilities of its own for production of either
the bulk biological compounds or the final dosage form of its product
candidates. The Company relies, and intends to continue to rely, upon its
corporate partners and third party subcontractors for the production of
products, for research, preclinical and clinical studies. The Company may be
unable to contract with suitable third-party manufacturers at commercially
feasible prices which would have the impact of adversely affecting the Company's
ability to commercialize its products.
At this time, the Company does not intend to build a fully-integrated
manufacturing operation to support production of the Company's products. In
manufacturing pharmaceutical products a company must comply with cGMPs that are
promulgated and enforced by the U.S. Food and Drug Administration as set forth
under Title 25 of the Code of Federal Regulations. The investment that would be
required to develop and validate a commercial manufacturing operation for a new
drug would be significant. The Company may consider, however, retaining the
rights to certain key proprietary processes used in the production of precursor
molecules which would be indispensable to the manufacturing of the final
formulation. In that case, a manufacturing revenue stream may be achievable
without requiring the magnitude of capital investment described above. There can
be no assurance that the Company will be able to develop necessary key processes
or that the practice of key processes would be cost effective.
38
<PAGE>
MARKETING AND SALES STRATEGY
The Company has no experience in marketing or selling products and does
not intend to build up a marketing operation that would compete with those of
existing multinational pharmaceutical companies, but rather intends to work with
other organizations for the marketing of the Company's products. The Company has
entered into strategic alliances, and will continue to attempt to do so, with
larger pharmaceutical companies which have their own marketing, sales and
distribution staffs and expertise. There can be no assurance that the Company
will establish productive strategic alliances or that any of its strategic
alliances will be in place long enough so that the Company recognizes any
significant profits.
GOVERNMENT REGULATIONS
The manufacturing and marketing of the Company's potential products are
subject to comprehensive regulation by numerous governmental authorities in the
United States and other countries. In the United States, products that the
Company anticipates developing are subject to rigorous regulation under the
Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other
federal and state statutes and regulations which govern, among other things, the
testing, approval, manufacture, labelling, storage, record keeping, advertising
and promotion of these products. Human therapeutic products require rigorous
testing, both preclinical and clinical, and approval by the FDA or other
appropriate foreign regulatory agencies for marketing in foreign countries.
Other statutory provisions and regulations govern testing, manufacturing,
labeling, storage and record keeping related to product development and
marketing of products. The process of applying for and obtaining regulatory
approval in compliance with the relevant statutes and regulations requires the
expenditure of substantial time and financial resources. Failure by the Company
or its licensees to comply with relevant statutes could result in, among other
things, fines, suspension of approvals, seizures, recalls of products, or
criminal prosecutions, and could delay regulatory approval, which in turn could
adversely impact the Company's plans for product introduction.
The Company believes that certain of its planned products may be
classified, for purposes of FDA regulation, as biological products, while others
may be classified as drugs. New drugs or biological products require several
steps in order to receive regulatory approval, including: (i) preclinical
laboratory and animal tests; (ii) submission to the FDA of an Investigational
New Drug Application ("IND"), which must become effective before human clinical
trials may start; (iii) the performance of well-controlled clinical trials; and
(iv) submission to the FDA of a New Drug Application ("NDA") for a new drug or a
Product License Application ("PLA") for a biologic. The NDA or PLA contains the
results of preclinical tests and clinical trials as well as required information
on product composition and manufacturing processes. In addition, for a
biological product, an Establishment License Application ("ELA") covering the
manufacturing facilities for the product must be submitted to the FDA. If the
Company does not manufacture the product that is the subject of the PLA,
contractual issues may complicate the ELA/PLA application and approval process
as a result of the FDA's rules pertaining to manufacturing of biological
products. The NDA or PLA/ELA must be approved by the FDA before commercial
marketing of the product may begin.
Prior to testing products in humans, a rigorous series of preclinical
studies must be performed on animals in order to assess the safety of potential
products. After testing on animals, an IND must be filed with the FDA to obtain
authorization for human testing. Unless the FDA objects, the IND becomes
effective 30 days after submission. Extensive clinical testing must then be
undertaken to demonstrate optimal use, safety and efficacy of each product in
humans. Human clinical trials are typically conducted in a three-step process.
In Phase I clinical trials, the potential product is tested on a small number of
healthy human subjects to determine the safety, dosage tolerance, pattern of
drug distribution, pharmacokinetic properties and metabolism. In Phase II,
clinical trials are conducted with groups of patients afflicted with a specific
disease or condition in order to determine preliminary efficacy and optimal
dosages and to identify potential adverse effects. In Phase III, large-scale,
multi-center, comparative trials are conducted in order
39
<PAGE>
to provide controlled and adequate demonstration of safety and efficacy. The FDA
reviews the clinical plans and the results of trials, and can discontinue the
trials at any time for any of a number of reasons. Each clinical trial is
conducted under the auspices of an Institutional Review Board ("IRB"). The IRB
considers, among other things, ethical factors, the safety and welfare of human
subjects, and the adequacy of the informed consent form. When completed, results
from the preclinical and clinical trials are submitted to the FDA as a NDA for
approval to commence commercial sales. The approval process is affected by
several factors, including the severity of the disease, the availability of
alternative treatments, and the risks and benefits demonstrated in clinical
trials. Following an extensive review, the FDA may grant product marketing
approval, request additional information (including additional studies) or deny
the application if the FDA deems that it does not satisfy the regulatory
approval criteria. There can be no assurance that approvals will be granted on a
timely basis, if at all. Similar procedures are in place in countries outside
the United States for product approvals in those countries. Even if new drugs
are approved in a foreign country, they may not be exported for commercial sale
until either FDA approval for sale in the United States or FDA approval of an
export application has been obtained.
The Company is also subject to regulations and recommendations related
to work place conditions, use and disposal of radioactive compounds and other
potentially hazardous materials, use of recombinant genetically engineered
organisms and potentially pathogenic organisms. Specifically, the Company will
be subject to government regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Atomic Energy Act, the Clean Air Act,
the Clean Water Act, the National Environmental Policy Act, the Toxic Substance
Control Act, and the Resource Conservation and Recovery Act, and other national,
state, or local regulations. This list of regulations and recommendations is not
an exclusive list nor is it static. The extent of regulations from future
legislation or mandates cannot be predicted with certainty.
FACILITIES
The Company's executive offices are located at One Kendall Square,
Building 200, Suite 2200, Cambridge, Massachusetts. Its offices include office
space and conference rooms which are shared with other companies. The Company
believes its facilities are adequate for its current operations. In the future,
the Company plans to establish a small laboratory.
EMPLOYEES
As of February 20, 1997, the Company had three employees. Dr. Katherine
Gordon is employed by the Company as President and Chief Executive Officer.
Robert J. Leonard is employed by the Company as Vice President of Business
Development. John J. Curry is Vice President of Finance and Chief Financial
Officer. Each of the Company's employees has entered into confidentiality
agreements with the Company. See "Risk Factors--Uncertain Ability to Protect
Proprietary Technology."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names and ages of the directors and executive officers of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Katherine Gordon, Ph.D. .............. 42 President and Chief Executive Officer; Director
Robert J. Leonard..................... 45 Vice President of Business Development; Secretary; Director
John J. Curry......................... 42 Vice President of Finance, Chief Financial Officer and Treasurer
Michael J. Callaghan.................. 44 Director
Theodore J. Gordon.................... 65 Director
Donald L. Weise....................... 62 Director
George W. Masters..................... 56 Director
</TABLE>
Messrs. Gordon and Weise have been designated Class I directors, to
serve until the Company's 1997 Annual Meeting of Stockholders; Dr. Gordon and
Mr. Masters have been designated Class II directors, to serve until the
Company's 1998 Annual Meeting of Stockholders; and Mr. Leonard has been
designated a Class III director, to serve until the Company's 1999 Annual
Meeting of Stockholders.
KATHERINE GORDON, PH.D. has served as the President, Chief Executive
Officer and a director of the Company since its inception. Prior to founding the
Company in 1992, Dr. Gordon was an Associate Director at Genzyme Corporation. At
Genzyme, Dr. Gordon launched a business unit which derives therapeutic proteins
from the milk of transgenic animals (animals infused with imported genes). In
1993, this department was spun off from Genzyme as a free-standing company known
as Genzyme Transgenics Corporation (listed on the Nasdaq National Market as
GZTC). Dr. Gordon was at Integrated Genetics (acquired by Genzyme) and Genzyme
from 1984 to 1991. She has over 15 years of research experience in mammalian
genetics/molecular biology and has had numerous publications, patent
applications and speaking engagements. Dr. Gordon is the daughter of Theodore
Gordon, a director of the Company.
ROBERT J. LEONARD has served as Vice President of Business Development
since June 1996 and as a director of the Company since September 1995. Mr.
Leonard is also the acting CEO of Endocon, Inc., a company that he founded in
1981 for the commercialization of controlled release drug delivery systems for
therapeutic use in humans and animals and has been CEO of Endocon since that
time. From 1975 through 1979 Mr. Leonard was founder and President of Robert J.
Leonard & Company, Inc., a small, privately-held corporation specializing in
medical and health care marketing services.
JOHN J. CURRY has served as the Vice President of Finance, Chief
Financial Officer and Treasurer of the Company since November 1996. Prior to
joining the Company, Mr. Curry was self-employed as a consultant from July 1994
until November 1996. From 1986 until July 1994, Mr. Curry served in various
capacities at Seragen, Inc., most recently as Director of Finance and
Administration. Seragen is a publicly-traded biotechnology company focused on
the development of therapeutic biological products for cancer and autoimmune
diseases. Prior to joining Seragen, Mr. Curry held various financial positions
with W.R. Grace & Co. and The B.F. Goodrich Company from 1980 until 1984 and
from 1979 to 1980, respectively.
THEODORE J. GORDON, a director of the Company, was President and CEO of
The Futures Group, Glastonbury, Connecticut, from the time he founded that
company in 1971 until 1990. He continues to serve as a director and Senior
Advisor for The Futures Group, which performs contract research studies for
private corporations and government agencies on future-oriented topics which
range from the frontiers of technology to specific changes in consumer markets.
Since 1990, Mr. Gordon has also worked as a
41
<PAGE>
consultant to several corporations, providing strategic planning services to
management. He is also a member of the Board of Directors of the Institute for
Global Ethics and Registry Magic, Inc. Mr. Gordon is the father of Katherine
Gordon, the President, Chief Executive Officer and a director of the Company.
DONALD L. WEISE is a Director of the Company. Since March 1994, Mr.
Weise has been an independent business consultant with international expertise
in licensing, acquisitions, strategic alliances and marketing in the fields of
pharmaceuticals, biotechnology, drug delivery and medical devices. He has 37
years of management experience in the health care industry. Prior to beginning
his consulting business, Mr. Weise was Director of Licensing and Acquisition of
the Ortho-McNeil Pharmaceutical Division of Johnson & Johnson, a position he
held from 1982 until March 1994.
GEORGE W. MASTERS, a director of the Company, retired as Vice Chairman,
President and Chief Executive Officer of Seragen, Inc., a position he had held
since April 1994, in November 1996. Prior to joining Seragen, Mr. Masters served
as the President and CEO of Verax, Inc. from 1991 until April 1994. Mr. Masters
has been a board member of approximately 15 medically oriented companies and
currently serves as a member of the Board of Directors of CME Telemetrix,
Hemosol, Inc., ImmuCell Corporation, PharmX Inc., ProScript Inc., CompuCyte,
Inc., the Marshalton Group and Intelligent Medical Imaging.
MICHAEL J. CALLAGHAN, a director of the Company, has served as
Vice-President of MDS Health Ventures Capital Corp., a leading health care
venture capital investment operation, since September 1991, and as Senior Vice
President since March 1996. In this capacity, he has been involved in the
financing of more than 30 emerging companies in Canada, the United States and
Europe, in various segments of the health care industry, including
biotechnology, pharmaceuticals, drug delivery, information services and medical
devices.
SCIENTIFIC AND CLINICAL ADVISORS
DR. JEFFREY FREED is currently a surgeon and an Associate Clinical
Professor at Mt. Sinai Medical Center. Dr. Freed also has a joint appointment as
Section Chief of Surgery at the Bronx Veterans Hospital. Dr. Freed specializes
in colo-rectal surgery. Dr. Freed is active in the home health care field and is
currently the Chairman of BioTime, Inc.'s scientific advisory board. Dr. Freed
received his M.D. degree Cum Laude from the State University of New York,
Brooklyn in 1970. Dr. Freed has recently been appointed Vice
President--Strategic Planning for NuGene Technologies, Inc., a company doing
research in gene therapy delivery systems.
DR. PHILIP LANDFIELD is Professor and Chair of Pharmacology at the
University of Kentucky School of Medicine. Dr. Landfield's research programs are
in the areas of brain aging and memory and the pharmacological/biological
mechanisms of neuropathology. His research group is investigating hippocampal
synaptic structure and physiology during aging, biomarkers of brain aging and
the mechanism(s) of glucocorticoid interaction in brain aging. Dr. Landfield
received a Ph.D. degree in Psychobiology from the University of California at
Irvine in 1971, had a post-doctoral appointment at the University of North
Carolina from 1972-1974, was Assistant Professor at the University of California
until 1978, Assistant/ Associate Professor at Wake Forest University,
Winston-Salem, North Carolina, from 1979-1991 and has been at the University of
Kentucky School of Medicine since that time.
DR. JAMES SIMPKINS is Professor of Pharmacodynamics and Co-Director of
the Center for the Neurobiology of Aging at the University of Florida Health
Science Center. In 1996, he was named the Frank A. Duckworth Professor of Drug
Discovery in the College of Pharmacy, University of Florida. Dr. Simpkins' major
research interests relate to the regulation of pituitary hormone secretion
during aging, the neuroprotective effect of steroid-like compounds, and the
pharmacology of brain-specific drug delivery systems. His group has recently
initiated a major extramurally-funded program, sponsored by the National
Institutes of Health, for the discovery of novel drugs for Alzheimer's disease.
Dr. Simpkins received a Ph.D. degree in physiology from Michigan State
University in 1977 and has been at the University of
42
<PAGE>
Florida since that time. He is also a professor of pharmacology and therapeutics
in the College of Medicine, University of Florida.
Each of the Company's scientific and clinical advisors is employed by
another entity. Certain advisors also have consulting agreements with businesses
other than the Company. These advisors are expected to devote only a limited
portion of their time to the Company and are not expected to participate
actively in the day-to-day affairs of the Company.
EMPLOYMENT AGREEMENTS, EXECUTIVE COMPENSATION AND AGREEMENTS WITH DIRECTORS
The Company has entered into an employment agreement with Dr. Katherine
Gordon under which the Company has agreed to employ Dr. Gordon as the Company's
President and Chief Executive Officer through a term ending in November 1998.
The agreement provides for automatic renewal for additional two-year periods
thereafter until unless party gives 90 days' notice of its intent not to renew.
The Board of Directors determines Dr. Gordon's annual salary, currently
$130,000, and Dr. Gordon is also eligible for an annual bonus at the Board's
discretion, based upon achievement of established performance criteria. If Dr.
Gordon is terminated by the Company without cause, she will be entitled to
continue to receive her salary and health and other insurance benefits for a
period of 12 additional months.
During each of the years 1993 through 1996, Dr. Katherine Gordon agreed
to defer payment of portions of her accrued salary and bonus in the aggregate
amount of $104,000. In December 1996, the Company and Dr. Gordon entered into an
agreement relating to a portion of these past deferred amounts whereby the
Company agreed to pay Dr. Gordon an aggregate of $80,000 in deferred salary and
bonus, together with interest calculated at a rate of 9% per annum, in equal
cash payments over the 24 months beginning January 1997. To date, Dr. Gordon and
the Company have not established a schedule for the payment of the remaining
$24,000 of Dr. Gordon's deferred compensation.
The Company has a group medical plan and management plans to offer,
disability and life insurance coverage to all full-time employees. Health, group
disability and life insurance benefits are currently provided only to Dr.
Gordon.
The Company pays each of its independent directors annual fees of $5,000
for service on the full board and annual fees of $500 for service on each of its
Audit and Compensation Committees.
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board
of Directors, but does not have a Nominating Committee. The Audit Committee,
currently consisting of Messrs. Masters and Weise, was created in November 1996.
The primary function of the Audit Committee is to assist the Board of Directors
in the discharge of its duties by providing the Board with an independent review
of the financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee will
review the scope of the Company's annual audit, the fees charged by the
Company's independent accountants and other matters relating to internal control
systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also administers the
Company's 1993 Incentive and Non-Qualified Stock Option Plan, including the
grant of stock options under the Plan. The Compensation Committee is currently
composed of Messrs. Masters and Weise.
1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
In June 1994, the Company's stockholders approved the Company's 1993
Incentive and Non-Qualified Stock Option Plan (the "1993 Option Plan"). The 1993
Option Plan currently permits the granting of options to purchase an aggregate
of 600,000 shares of the Company's Common Stock to key
43
<PAGE>
employees, consultants and directors of the Company or any parent or subsidiary
of the Company. Options granted under the 1993 Option Plan may be either
incentive stock options ("ISOs") or non-qualified stock options ("NSOs"). ISOs
may only be granted to management and key employees.
The 1993 Option Plan is administered by the Compensation Committee.
Subject to the provisions of the 1993 Option Plan, the Committee has the
authority to determine the individuals to whom stock options will be granted,
the number of shares to be covered by each option, the option price, the type of
option, the option period, the vesting restrictions, if any, with respect to the
exercise of the option, the terms for the payment of the option price and other
terms and conditions. Payment for shares acquired upon exercise of an option may
be made in cash or shares of Common Stock.
The exercise price for shares covered by an ISO may not be less than
100% of the fair market value of the Common Stock on the date of grant (110% in
the case of a grant to an employee who owns more than 10% of the combined total
voting power of all classes of stock of the Company or any subsidiary (a "10%
Stockholder") and not less than the par value thereof. The exercise price for
shares covered by NSOs may not be less than the greater of 50% of the fair
market value and the par value of the Common Stock at the date of grant. Options
may be exercised as determined by the Committee, provided that all options
expire no later than ten years (five years in the case of an ISO granted to a
10% Stockholder) from the date of grant. If the employment of an optionee
terminates other than for reasons of death or retirement, any options held by
that optionee will expire three months after the termination of the optionee's
service with the Company and any of its subsidiaries. No individual may be
granted ISOs that become exercisable for the first time in any calendar year for
Common Stock having a fair market value at the time of grant in excess of
$100,000.
Options granted under the 1993 Option Plan are generally exercisable
during the lifetime of the optionee only by the optionee. Options may not be
transferred except as provided by the Committee or by will or the laws of
descent and distribution. Subject to certain limitations set forth in the 1993
Option Plan and applicable law, the Board of Directors may amend or terminate
the 1993 Option Plan. By its own terms, the 1993 Option Plan will terminate on
December 17, 2003.
In the case of certain events, including certain dividends,
recapitalizations and reorganizations, the Committee will equitably adjust (1)
the number of shares available under the 1993 Option Plan, (2) the number of
shares subject to outstanding options, or (3) the exercise price of outstanding
options. The 1993 Option Plan also empowers the Board of Directors and the
Committee to take other actions to protect outstanding options if the Company
is, among other things, merged or consolidated with another company or
liquidated.
1996 DIRECTOR STOCK OPTION PLAN
All of the directors who are not employees of the Company (the "Eligible
Directors"), except Mr. Michael J. Callaghan, are currently eligible to
participate in the Company's 1996 Director Stock Option Plan (the "Director
Plan"). The Director Plan currently permits the granting of options to purchase
an aggregate of 90,000 shares of the Company's Common Stock. Under the Director
Plan, options to purchase 9,000 shares of Common Stock are automatically granted
to each participating Eligible Director on the date of the annual meeting of the
stockholders of the Company in every third year (a "Grant Year"). In addition,
participating Eligible Directors that are initially elected to the Board other
than at an annual meeting in a Grant Year are automatically granted options to
purchase 3,000 shares of Common Stock for each year, or portion thereof, between
the date of such Eligible Director's election and the date of the next annual
meeting in a Grant Year. Options become exercisable with respect to 3,000 shares
on the date of grant and on the date of each annual meeting of stockholders
thereafter, so long as the optionee is then a director of the Company. The
options have a term of ten years and currently have an exercise price, payable
in cash or shares of Common Stock, equal to the fair market value of the Common
Stock, as determined by the Board of Directors. After completion of the
offering, the last sale price for the
44
<PAGE>
Common Stock on the business day immediately preceding the date of grant, as
reported by Nasdaq, shall be the exercise price.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table shows, for the fiscal years ended December 31, 1995 and
1996, certain compensation paid by the Company, including salary, bonuses, stock
options, and certain other compensation, to the Chief Executive Officer.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SHARES
--------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Katherine Gordon, Ph.D. 1995 $ 115,000(1) $ 25,000(2) 105,000 --
President and Chief Executive Officer 1996 $ 115,000 $ 25,000(2) 30,000 --
</TABLE>
- ------------------------
(1) A portion of Dr. Gordon's salary in the amount of $40,000 was accrued and
not paid in 1995, with the agreement of Dr. Gordon.
(2) The entire portion of Dr. Gordon's bonuses was accrued and not paid with the
agreement of Dr. Gordon.
OPTION GRANTS
The following table sets forth certain information regarding options
granted during the twelve months ended December 31, 1995 and 1996 by the Company
to the Chief Executive Officer:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
SHARES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------
NAME GRANTED FISCAL 1995 BASE PRICE DATE 5% 10%
- ------------------------------------------ ----------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Katherine Gordon, Ph.D. 1995 75,000 45.5% $ 0.83 11/29/05 $ 39,149 $ 99,210
1996 30,000 66.7 2.67 11/1/06 50,374 127,659
</TABLE>
- ------------------------
(3) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of the grant until the expiration of the ten-year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth.
OPTION EXERCISES AND FISCAL YEAR-END VALUES.
There were no option exercises during the fiscal year ended December 31,
1996.
45
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION WITH NPLP
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the
general partner, invested $500,000 in the Company in exchange for 214,287 shares
of Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP agreed to provide an additional
$500,000 (the "NPLP Development Financing") to the Company. In exchange for the
NPLP Development Financing, the Company is obligated to pay NPLP royalties based
upon a certain percentage of revenues earned from sales of, and license fees and
other revenues received by the Company in connection with, any products that
relate to the use of estrogen in the treatment of chronic neurodegenerative
diseases. The Company's obligations to pay royalties cease when royalty payments
reach certain aggregate amounts. In connection with the NPLP Development
Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock
at an exercise price of $2.33 per share and (ii) warrants to purchase 45,000
shares of Common Stock at an exercise price of $2.92 per share. All or any
portion (not less than $150,000) of the Company's future obligation to pay
royalties may be converted at any time at the option of MDS into shares of
Common Stock at a conversion price equal to (i) with respect to that portion of
such royalties as is equal to up to 50% of the amount of the NPLP Development
Financing, the lesser of (a) $2.92 and (b) the price per share of the Common
Stock reflected in the Company's most recent financing prior to any conversion
and (ii) with respect to that portion of such royalties as is equal to the
remaining 50% of the amount of the NPLP Development Financing, the lesser of (a)
$3.50 and (b) the price per share of the Common Stock reflected in the Company's
most recent financing prior to any conversion. If NPLP were to exercise its
warrants and its conversion rights in full, NPLP would beneficially own 521,429
shares of the Company's Common Stock (or approximately 9.1% of the Common Stock
outstanding). See "Principal Stockholders."
In connection with the NPLP Development Financing, Michael J. Callaghan,
a principal of MDS, became a member of the Board of Directors of the Company.
AGREEMENT WITH ENDOCON
In June 1994, the Company entered into an agreement with Endocon (the
"Endocon Agreement") to co-develop certain estrogens within subcutaneous drug
delivery vehicles. As currently in effect, the Endocon Agreement focuses on the
development of 17b-estradiol within a subcutaneous drug delivery vehicle for the
treatment of Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon
is obligated to pay the other for any rights to intellectual property underlying
the Endocon Agreement or for development of the product. The Company and Endocon
are currently in discussions regarding the execution of a license agreement for
NEURESTROL which will supercede the Endocon Agreement.
Robert J. Leonard, the acting CEO and a member of the board of directors
of Endocon, became the Secretary and a Director of the Company in 1995 and its
Vice President of Business Development in June 1996. Mr. Leonard will be
excluded from acting on behalf of the Company in the negotiation and approval of
any new license agreement with Endocon.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will be
entered into only if those transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock as of February 20, 1997 (i) by each person known
by the Company to own beneficially five percent or more of its Common Stock,
(ii) by each director of the Company, (iii) by the Chief Executive Officer of
the Company and (iv) by all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------- -----------------------
BENEFICIAL OWNER(2) NUMBER(1) PERCENT NUMBER(1) PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Neuroscience Partners
Limited Partnership(3) .............................................. 521,429 11.5% 521,429 9.1%
c/o MDS Associes--Neuroscience Inc.
100 International Boulevard
Etobicoke, Ontario
Alan Gelband(4) ..................................................... 525,000 12.4 525,000 9.7
c/o Gelband Capital
575 Madison Avenue--8th Floor
New York, New York
Katherine Gordon, Ph.D.(5) .......................................... 465,675 10.7 465,675 8.4
Donna B. Cohen ...................................................... 359,400 8.5 359,400 6.6
3311 N.E. 26th Avenue
Lighthouse Point, Florida
Michael J. Callaghan(6).............................................. 521,429 11.5 521,429 9.1
Theodore J. Gordon(7)................................................ 168,000 4.0 168,000 3.1
Robert J. Leonard(8)................................................. 90,000 2.1 90,000 1.6
George W. Masters(9)................................................. 3,000 * 3,000 *
Donald L. Weise(9)................................................... 3,000 * 3,000 *
All directors and executive officers as a group (7 persons)(10)...... 1,256,729 26.4% 1,256,729 21.1%
</TABLE>
- ------------------------
* Indicates less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to stock options and
warrants currently exercisable or exercisable within 60 days are deemed to
be outstanding for computing the percentage ownership of the person
holding the options and the percentage ownership of any group of which the
holder is a member, but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown beneficially owned by them.
(2) Except as otherwise indicated the address of each stockholder identified
is c/o the Company, One Kendall Square, Building 200, Suite 2200,
Cambridge, Massachusetts 02139.
(3) Includes (i) 150,000 shares subject to warrants currently exercisable or
exercisable within the 60-day period following February 20, 1997, and (ii)
157,142 shares issuable upon conversion of a right to receive future
royalty payments. MDS Associes-Neuroscience Inc. is the sole general
partner of Neuroscience Partners Limited Partnership. Michael J.
Callaghan, a principal of MDS, is a director of the Company.
47
<PAGE>
(4) Includes (i) 15,000 shares and 15,000 additional shares subject to
warrants currently exercisable or exercisable within the 60-day period
following February 20, 1997, each held of record by the Alden Foundation,
and (ii) 45,000 shares of Common Stock owned by the Alan Gelband Company
Defined Contribution Pension Plan & Trust.
(5) Includes 106,875 shares subject to stock options and 15,000 shares subject
to warrants, each currently exercisable or exercisable within the 60-day
period following February 20, 1997. Dr. Gordon disclaims beneficial
ownership of shares beneficially owned by her father, Mr. Theodore J.
Gordon.
(6) Consists of shares owned of record by or subject to purchase rights of
Neuroscience Partners Limited Partnership.
(7) Includes 3,000 shares subject to stock options and 15,000 shares subject
to warrants, each currently exercisable or exercisable within the 60-day
period following February 20, 1997. Mr. Gordon disclaims beneficial
ownership of shares beneficially owned by his daughter, Dr. Katherine
Gordon.
(8) Consists of 90,000 shares subject to stock options currently exercisable
or exercisable within the 60-day period following February 20, 1997.
(9) Consists of 3,000 shares subject to stock options currently exercisable or
exercisable within the 60-day period following February 20, 1997.
(10) Includes (i) 211,500 shares subject to stock options currently exercisable
or exercisable within the 60-day period following February 20, 1997, (ii)
180,000 shares subject to warrants currently exercisable or exercisable
within 60-day period following February 20, 1997, and (iii) 157,142 shares
currently issuable upon conversion of a right to receive future royalty
payments.
48
<PAGE>
DESCRIPTION OF SECURITIES
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $0.02 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share. As of
the date of this Prospectus, the Company had 67 stockholders. Upon the closing
of this offering, the Company will have 5,416,063 shares of Common Stock
outstanding.
While the following description of the Warrants, Common Stock and
Preferred Stock includes a description of all material provisions relating to
these securities, it does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation, the form of which is included as an
exhibit to the Registration Statement, and by the provisions of applicable law.
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Warrant. Each Warrant entitles the holder thereof to purchase one share of
Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to
be voted upon by the stockholders. There are no cumulative voting rights.
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock would share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding shares of Preferred Stock. The Common Stock outstanding upon the
effective date of the Registration Statement, and the Units offered by the
Company hereby, upon issuance and sale, will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock, in one or more series, and to fix the
relative rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividends rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of any series, without further vote or action by the stockholders. The Board of
Directors could, without the approval of the stockholders, issue Preferred Stock
having voting or conversion rights that could adversely effect the voting power
of the holders of Common Stock and the issuance of Preferred Stock could be
used, under certain circumstances, to render more difficult or discourage a
hostile takeover of the Company. No shares of Preferred Stock will be
outstanding immediately following the closing of the offering and the Company
has no present plans to issue any shares of Preferred Stock.
THE WARRANTS OFFERED
The following discussion of the terms and provisions of the Warrants is
qualified in its entirety by reference to that certain warrant agreement (the
"Warrant Agreement") between the Company and American Stock Transfer and Trust
Company as the warrant agent (the "Warrant Agent"). The Warrants will be
evidenced by warrant certificates in registered form.
As of the close of this offering, the Company will have 1,200,000
Warrants outstanding, assuming that the Underwriters' over-allotment option is
not exercised and assuming that none of the Warrants is exercised.
The holder of each Warrant is entitled to purchase one share of Common
Stock at an exercise price of $ . The Warrants are exercisable at any time
after issuance until the fifth anniversary of the
49
<PAGE>
date of this Prospectus, provided that at that time, a current prospectus under
the Securities Act relating to the Common Stock is then in effect and the Common
Stock is qualified for sale or exempt from qualification under applicable state
securities laws. The Warrants included in the Units offered hereby are
immediately transferable separately from the Common Stock. The Warrants are
subject to redemption, as described below.
Commencing one year from the date of this Prospectus, the Warrants are
subject to redemption by the Company, on not less than 30 days' prior written
notice, at a price of $0.25 per Warrant, if the average of the closing bid
prices of the Common Stock for any period of 20 consecutive business days ending
within 10 business days of the date on which the notice of redemption is given
shall have exceeded $ per share (subject to adjustment). For these purposes,
the closing bid price of the Common Stock shall be determined by the closing bid
price, as reported by Nasdaq, so long as the Common Stock is quoted on the
Nasdaq SmallCap-SM- Market or if the Common Stock is a Nasdaq National Market
("NNM") security or listed on a securities exchange, shall be determined by the
last reported sales price. The Company's redemption rights will be in effect
only if the Common Stock is either quoted on Nasdaq or listed on a securities
exchange. Holders of Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of their Warrants
unless the Warrants are exercised before they are redeemed. A notice of
redemption will be mailed to each of the registered holders of the Warrants no
later than 30 days before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the date of
expiration of the right to exercise the Warrants.
The Warrants may be exercised upon surrender of the certificate therefor
on or prior to the expiration or redemption date (as explained above) at the
offices of the Company's Warrant Agent with the form of "Election to Purchase"
on the reverse side of the certificate filled out and executed as indicated,
accompanied by payment (in the form of a certified or cashier's check payable to
the order of the Company) of the full exercise price for the number of Warrants
being exercised. The Company, in its discretion, has the right to reduce the
exercise price of either or both classes of Warrants subject to compliance with
Rule 13e-4 promulgated under the Exchange Act, if applicable.
Upon exercise of the Warrants, the Managing Underwriter shall be
entitled to receive five percent of the exercise price of such Warrants;
provided, however, that such payment shall not be made to the Managing
Underwriter with respect to the exercise of any Warrant (i) that has an exercise
price greater than the current market value of the Common Stock on the date of
exercise, (ii) that is held in a discretionary account at the time of exercise
and for which specific, prior approval for exercise has not been received from
the registered holder thereof, or (iii) the exercise of which was not solicited
by the Managing Underwriter.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and rate in certain events, like
stock dividends, stock splits, mergers or consolidations and other unusual
events.
The Company is not required to issue fractional shares and, in lieu
thereof, will make a cash payment based upon the current market value of any
fractional shares (determined as the mean between the last reported bid and
asked prices reported or, if the Common Stock is an NNM security or traded on a
securities exchange, the last reported sales price, in each case as of the last
business day prior to the date of exercise). The holder of a Warrant will not
have any rights as a stockholder of the Company unless and until the Warrant is
exercised.
OTHER WARRANTS AND CONVERSION RIGHTS
In order to fund its continuing operations, the Company completed two
bridge financings, one in September 1994 (the "1994 Bridge Financing") and one
in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge
Financing, the Company issued (i) an aggregate of $135,000 in principal
50
<PAGE>
amount of Convertible Promissory Notes (the "1994 Notes") which were due on the
earlier of September 19, 1996 or the closing by the Company of a private
placement financing yielding gross proceeds of not less than $1,000,000 and (ii)
warrants to purchase an aggregate of 135,000 shares of the Company's Common
Stock exercisable at $1.00 per share. In connection with the 1995 Bridge
Financing, the Company issued (i) an aggregate of $75,000 in principal amount of
Convertible Promissory Notes (the "1995 Notes") which were due on the earlier of
April 30, 1997 or the closing by the Company of a private placement financing
yielding gross proceeds of not less than $1,000,000 and (ii) warrants to
purchase an aggregate of 75,000 shares of the Company's Common Stock exercisable
at $1.00 per share. In September 1996, the 1994 Notes were converted into
135,000 shares of Common Stock and, in December 1996, the 1995 Notes were
converted into 75,000 shares of Common Stock.
In December 1996, the Company consummated the NPLP Development
Financing. In exchange for the NPLP Development Financing, the Company is
obligated to pay NPLP royalties based upon a certain percentage of revenues
earned from sales of, and license fees and other revenues received by the
Company in connection with, any products developed that relate to the use of
estrogen in the treatment of chronic, neurodegenerative diseases. The Company's
obligations to pay royalties cease when royalty payments reach certain aggregate
amounts. In connection with the NPLP Development Financing, NPLP received (i)
warrants to purchase 105,000 shares of Common Stock at an exercise price of
$2.33 per share and (ii) warrants to purchase 45,000 shares of Common Stock at
an exercise price of $2.92 per share. All or any portion (not less than
$150,000) of the Company's future obligations to pay royalties may be converted
at any time at the option of MDS into shares of Common Stock at a conversion
price equal to (i) with respect to that portion of such royalties as is equal to
up to 50% of the amount of the NPLP Development Financing, the lesser of (a)
$2.92 and (b) the price per share of the Common Stock reflected in the Company's
most recent financing prior to any conversion and (ii) with respect to that
portion of such royalties as is equal to the remaining 50% of the amount of the
NPLP Development Financing, the lesser of (a) $3.50 and (b) the price per share
of the Common Stock reflected in the Company's most recent equity financing
prior to any conversion. If NPLP were to exercise its warrants and conversion
rights in full, NPLP would beneficially own 521,429 shares of the Company's
Common Stock (or approximately 9.1% of the Company Stock outstanding). See
"Principal Stockholders."
At the time of the NPLP Development Financing, Michael J. Callaghan, a
principal of MDS, became a member of the Board of Directors of the Company.
STOCK OPTIONS
The Company has reserved 600,000 shares of Common Stock for issuance
under the 1993 Option Plan, of which 345,000 shares are subject to outstanding
options, and 90,000 shares of Common Stock for issuance under the Director Plan,
of which 27,000 shares are subject to outstanding options. To date, no options
granted under the Company's stock option plans have been exercised.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of
Preferred Stock, the charter and the By-laws of the Company contain several
other provisions that are commonly considered to discourage unsolicited takeover
bids. The charter includes provisions classifying the Board of Directors into
three classes and staggered three-year terms and prohibiting stockholder action
by written consent. The Board of Directors may also enlarge the size of the
Board and fill any vacancies on the Board. The By-laws provide that nominations
for directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make a nomination notifies the Company of
its intention a specified period in advance and furnishes certain information.
The By-laws also provide that special meetings of the Company' stockholders may
be called only by the President or the Board of Directors and require advance
notice of business to be brought by a stockholder before the annual meeting.
51
<PAGE>
In February 1988, a law regulating corporate takeovers (the
"Anti-Takeover Law") took effect in Delaware. In certain circumstances, the
Anti-Takeover Law prevents certain Delaware corporations, including those whose
securities are listed on the Nasdaq SmallCap-SM- Market, from engaging in a
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with an "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock) for three years
following the date on which that stockholder became an "interested stockholder"
subject to certain exceptions, unless the transaction is approved by the board
of directors and the holders of at least 66 2/3% of the outstanding voting stock
of the corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by persons who are both directors and officers or by certain employee stock
plans). A Delaware corporation subject to the Anti-Takeover Law may "opt out" of
the Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. This type of amendment is
effective following expiration of twelve months from adoption. The Company is a
Delaware corporation that is subject to the Anti-Takeover Law and has not "opted
out" of its provisions.
The foregoing provisions of Delaware law and the Restated Certificate
and By-laws could have the effect of discouraging others from attempting a
hostile takeover of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might result
from actual or rumored hostile takeover attempts. These provisions may also have
the effect of preventing changes in the management of the Company. It is
possible that these provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
REGISTRATION RIGHTS
NPLP, which is the holder of 214,287 shares of Common Stock, warrants to
purchase 150,000 shares of Common Stock and rights to convert the NPLP
Development Financing into shares of Common Stock (collectively, the
"Registrable Shares"), is entitled to certain rights with respect to
registration under the Securities Act of the Registrable Shares. If the Company
proposes to register any of its securities under the Securities Act at any time
after the consummation of this offering, either for its own account or for the
account of other security holders, NPLP is entitled to notice of any such
registration and is entitled to include Registrable Shares in the registration.
The rights are subject to certain conditions and limitations, among them, the
right of the underwriters of a registered offering to limit the number of shares
included in the registration. NPLP may also require the Company to file at its
expense a registration statement under the Securities Act with respect to
214,287 of the Registrable Shares at any time commencing 13 months from the
consummation of this offering and with respect to all Registrable Shares at any
time commencing 25 months from the consummation of this offering and, subject to
certain conditions and limitations, the Company is required to effect a
registration. Furthermore, NPLP may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3 with respect to the Registrable Shares.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,416,063 shares
of Common Stock outstanding. Of these shares, the 1,200,000 shares sold in this
offering, assuming no exercise of the Underwriters' over-allotment option, will
be freely tradeable without restriction under the Securities Act, unless they
are held by "affiliates" of the Company as that term is used under the
Securities Act and the regulations promulgated thereunder.
The remaining 4,216,063 shares held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares"). The Company and [all] holders of
Common Stock have agreed not to offer, sell, pledge, hypothecate or otherwise
dispose of any shares of the Company's Common Stock for a period of 13 months
after the effective date of the Registration Statement of which this prospectus
is a part (the "Effective Date") without the prior written consent of the
Managing Underwriter. As a result of these contractual restrictions (the
"Lock-Up Agreements"), notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 701, shares subject to Lock-Up Agreements
will not be saleable until the agreements expire. Beginning 180 days after the
Effective Date, of the Restricted Shares will become eligible for
sale in reliance on Rule 144 or Rule 701 and Rule 144 upon the expiration of the
Lock-Up Agreements, subject, in some cases, to certain volume and other
limitations. In addition, beginning 90 days after the Effective Date, holders of
then vested options to purchase
shares will be entitled to exercise their options and sell the underlying
shares, and, beginning 13 months after the Effective Date, an additional
shares subject to vested options will be available for sale upon the
expiration of the Lock-Up Agreements, and subject, in the case of directors and
officers of the Company, to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
( shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
sale, subject to the filing of a Form 144 with respect to the sale and certain
other limitations and restrictions. In addition, a person, other than an
affiliate or an individual who was an affiliate within 90 days of the proposed
sale, who has beneficially owned the shares proposed to be sold for at least
three years, would be entitled to sell those shares under Rule 144(k) without
regard to the requirements described above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the Effective Date. However, all officers and directors and certain
other stockholders have agreed, in the Lock-Up Agreements, not to sell or
otherwise dispose of Common Stock or the Company for the 13-month period after
the Effective Date without the prior written consent of the Managing
Underwriter. See "Underwriting."
The Company intends to file S-8 registration statements under the
Securities Act to register all shares of Common Stock issuable under the 1993
Option Plan and the Director Plan. Shares covered by this kind of registration
statement will be eligible for sale in the public market immediately upon filing
of the registration statement, subject to Rule 144 limitations applicable to
affiliates and the expiration of the Lock-Up Agreements, if applicable.
53
<PAGE>
Prior to this offering, there has been no public market for the Common
Stock and no prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock
in the public market may have an adverse impact on the market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom the Managing Underwriter
is acting as representative, has agreed severally to purchase from the Company,
the respective number of Units set forth opposite its name below. The
Underwriters are committed to purchase and pay for all Units if any Units are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
First United Equities Corporation......................................................
---------------
Total............................................................................ 1,200,000
---------------
---------------
</TABLE>
The Managing Underwriter has advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at the
same price, less a concession of not in excess of $ per share, of which $
may be reallocated to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Managing Underwriter. No reduction of this sort shall change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus. The Managing Underwriter has informed the Company that the
Underwriters do not intend to sell Units to any purchasers over whom such
Underwriters exercise discretionary authority.
The Company has granted the Underwriters an option for 45 days after the
date of this Prospectus to purchase, at the initial public offering price, less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 180,000 additional Units at the same price per share as
the Company received for the 1,200,000 Units offered hereby, solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of Units
to be purchased by each of them, as shown in the foregoing table, bears to the
1,200,000 Units offered hereby. The Underwriters may exercise their option only
to cover the over-allotments in connection with the sale of the 1,200,000 Units.
The Company has also agreed to pay the Managing Underwriter a
nonaccountable expense allowance of 3% of the offering proceeds, including
proceeds from the over-allotment option, if exercised, of which $ has
been paid to the Managing Underwriter to date. The Managing Underwriter's
expenses in excess of the nonaccountable expense allowance, including its legal
expenses, will be borne by the Managing Underwriter. To the extent that the
expenses of the Managing Underwriter are less than the nonaccountable expense
allowance, the excess will be deemed to be compensation to the Managing
Underwriter.
The Underwriting Agreement provides that, for a period of three years
after the completion of this offering, the Managing Underwriter shall have the
right, subject to reasonable approval by the Company, to nominate one person to
attend the Company's Board of Directors meetings. The Managing Underwriter has
not yet designated its nominee.
The Managing Underwriter has agreed to provide investment banking
services to the Company upon completion of this offering for a period of three
years for an aggregate fee of $108,000, payable at the closing (the "Closing")
of this offering. The consulting arrangement will not require the Managing
Underwriter to devote a specific amount of time to the performance of its duties
thereunder.
55
<PAGE>
The Company has also agreed that, for a period of five years from the
date of the Underwriting Agreement, (i) prior to entering into any agreements
with respect to the public offering or private placement of equity securities or
securities convertible into equity securities of the Company it will approach
the Managing Underwriter to determine its level of interest, and (ii) to use its
diligent efforts consistent with good business practices to induce any other
underwriter to include the Managing Underwriter in the underwriting syndicate,
with respect to any public offerings by the Company.
The Company has agreed to sell to the Managing Underwriter, for nominal
consideration, the Managing Underwriter's Warrant to purchase up to 120,000
shares of Common Stock at an exercise price equal to $ per share. The
Managing Underwriter's Warrant will be exercisable during the five-year period
commencing the date of the closing of the offering and are not transferable for
a period of one year from the date of this Prospectus, except to officers of the
Managing Underwriter or to members of the Managing Underwriter's selling group.
Each of the Company's directors and officers and certain other employees
and securityholders of the Company has agreed not to offer, sell, contract to
sell or otherwise dispose of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 13 months following the Effective Date, without the prior written
consent of the Managing Underwriter. The Company has also agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock for a period of 13 months following the date of this
Prospectus without the prior written consent of the Managing Underwriter, except
for the granting of options or the sale of stock pursuant to the Company's
existing option plans. The Managing Underwriter, in its discretion, may waive
the foregoing restrictions, in whole or in part, with or without a public
announcement to that effect.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Units will be determined by
negotiations among the Company and the Managing Underwriter. Among the factors
considered in determining the initial public offering price of the Units, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuations of companies in related
businesses.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Rubin Baum
Levin Constant Friedman & Bilzin, Miami, Florida.
EXPERTS
The financial statements of the Company at December 31, 1996 and for
each of the years in the two-year period then ended, appearing in this
Prospectus and the Registration Statement have been audited by Richard A. Eisner
& Company, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon that report given upon the authority of that firm as
experts in accounting and auditing.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act relating to the Units offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement,
and the exhibits and schedules thereto, which may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of the
contract or other document filed as an Exhibit to the Registration Statement,
each statement being qualified in all respects by that reference. Copies of
these materials may be obtained upon written request from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, or may be accessed electronically through the Commission's
home page on the Internet at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
57
<PAGE>
GLOSSARY OF TECHNICAL TERMS
<TABLE>
<S> <C>
Acetylcholine A neurotransmitter.
Alzheimer's disease A disease of presenile dementia which is characterized by
loss of memory and cortical atrophy in frontal and temporal
lobes of the brain.
Amyloid plaques Degenerating neuron components surrounding a core of
("Plaques") B-amyloid.
Animal model An animal which can be used to study a human disease or
condition due to resemblance to disease or condition.
Cholinergic neurons Neurons that use acetylcholine as a neurotransmitter.
Dehydroepiandrosterone A steroid hormone which is a product of cholesterol and is a
(DHEA) precursor to androgens and estrogen.
Dehydroepiandrosterone A sulfated form of DHEA.
sulfate (DHEAS)
Dementia Deterioration or loss of intellectual faculties, reasoning
power and memory due to organic brain disease.
Dopamine A neurotransmitter.
Dopaminergic neurons Neurons that use dopamine as a neurotransmitter.
Endocrine A gland or system responsible for secretion of hormones
directly into the bloodstream.
Estrogen A hormone, produced principally by the ovaries, which
stimulates the accessory sex structures.
Growth factor A substance, either genetic or extrinsic, which affects
growth.
Growth hormone A hormone that promotes growth and also has direct influence
on metabolism of carbohydrates, fats and proteins.
Hippocampus A region of the brain involved in cognitive function and
memory.
Hormone A chemical product of an organ which has a specific
regulatory effect on cells remote from its origin.
Hormone replacement therapy Replacement or supplementation of hormones which are
deficient in the body.
IN VITRO Refers to studies and/or phenomena that take place outside
the body (e.g., in test tubes).
IN VIVO Refers to studies and/or phenomena that take place inside
the body of animals or humans.
IND Investigational New Drug application. A formal notice
submitted to the FDA for review and approval prior to
beginning clinical trials to evaluate a new drug.
Lewy bodies Characteristic masses found within cells of degenerating
neurons in certain brain regions.
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
NEURESTOL A registered trademark of Endocon representing 17b-estradial
within a subcutaneous delivery system for use in the
prevention of neurodegeneration.
NEUROCALC A trademark of the Company representing calcitriol for use
in the prevention of neurodegeneration.
Neurodegeneration Refers to degeneration or death of cells in the nervous
system.
Neuroendocrine Pertaining to the nervous and endocrine systems in anatomic
or functional relationship.
Neuroendocrine aging Refers to age-related changes in the neuroendocrine system.
Neurofibrillary tangles Refers to thick, twisted bands of fibrous material which
("Tangles") deposits irregularly in the cytoplasm in degenerating
neurons.
ABPI-124 The Company's working name for certain novel estrogens for
use in the prevention of neurodegeneration.
Neurotransmitter A chemical messenger responsible for transmitting signals
from sending to receiving neurons.
Osteoporosis A condition in which bone tissue is decreased, resulting in
enlargement of marrow and decreased thickness of bone
cortex.
Parkinson's disease A disease characterized by tremor and rigidity caused by
damage to pigmented brainstem nuclei.
Progesterone A steroid hormone secreted by the ovary which is essential
for maintenance of pregnancy.
Prophylaxis A method of maintaining health or preventing disease.
Receptor A specific structure on a cell's surface to which a hormone
or other interactive molecule binds to affect cellular
function in a specific way.
</TABLE>
59
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
- I N D E X -
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C>
REPORT OF INDEPENDENT AUDITORS.......................................................................... F-2
BALANCE SHEETS.......................................................................................... F-3
STATEMENTS OF OPERATIONS................................................................................ F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)................................................. F-5
STATEMENTS OF CASH FLOWS................................................................................ F-6
NOTES TO FINANCIAL STATEMENTS........................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Apollo BioPharmaceutics, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheet of Apollo
BioPharmaceutics, Inc. (a development stage company) as at December 31, 1996 and
December 31, 1995, and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the years in the
two-year period ended December 31, 1996, and for the period from July 9, 1992
(inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of Apollo
BioPharmaceutics, Inc. at December 31, 1996 and December 31, 1995, and the
results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 1996, and for the period from July 9, 1992
(inception) through December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
February 4, 1997
F-2
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 246,721 $ 1,254,250
Equipment, net of accumulated depreciation of $415 at
December 31, 1996........................................................... 3,736
Organization costs, net of accumulated amortization of $3,584 and $4,633 at
December 31, 1995 and 1996, respectively (Note B)........................... 1,661 612
Deferred public offering costs................................................ 219,165
------------- -------------
TOTAL................................................................... $ 248,382 $ 1,477,763
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses....................................... $ 211,923 $ 299,179
Notes payable (Note C)........................................................ 204,400
Deferred credit (Note E)...................................................... 180,000
Commitments (Note E)
Stockholders' equity (deficit) (Note D):
Preferred stock--$.01 par value; 1,000,000 shares authorized, none issued
Common stock--$.02 par value; 20,000,000 shares authorized, 3,531,000 and
4,216,063 shares issued at December 31, 1995 and 1996, respectively....... 70,620 84,321
Additional paid-in capital.................................................. 1,133,900 2,690,115
Deficit accumulated during the development stage............................ (1,372,461) (1,775,852)
------------- -------------
Total stockholders' equity (deficit).................................... (167,941) 998,584
------------- -------------
TOTAL................................................................... $ 248,382 $ 1,477,763
------------- -------------
------------- -------------
</TABLE>
Attention is directed to the accompanying notes to financial statements.
F-3
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JULY 9, 1992
YEAR ENDED (INCEPTION)
DECEMBER 31, 1996 THROUGH
------------------------ DECEMBER 31,
1995 1996 1996
----------- ----------- -------------
<S> <C> <C> <C>
Revenue:
Licensing and option revenue (Note B[1])............................... $ -- $ 180,000 $ 180,000
Interest income........................................................ 2,535 11,032 23,103
----------- ----------- -------------
Total revenue...................................................... 2,535 191,032 203,103
----------- ----------- -------------
Expenses:
Research and development............................................... 131,842 199,516 666,354
General and administrative............................................. 255,592 358,833 1,241,742
Depreciation and amortization expense.................................. 1,049 2,964 6,548
Interest expense....................................................... 31,201 33,110 64,311
----------- ----------- -------------
Total expenses..................................................... 419,684 594,423 1,978,955
----------- ----------- -------------
NET LOSS................................................................. $ (417,149) $ (403,391) $ (1,775,852)
----------- ----------- -------------
----------- ----------- -------------
Net loss per share....................................................... $ (.11) $ (.10)
----------- -----------
----------- -----------
Weighted average number of shares outstanding............................ 3,784,623 4,185,555
</TABLE>
Attention is directed to the accompanying notes to financial statements.
F-4
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
$.02 PAR VALUE ADDITIONAL DURING
--------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Sale of common stock at $.07 per share from inception
through December 31, 1992............................. 615,000 $ 12,300 $ 28,700 $ 41,000
Issuance of common stock for services at $.07 per share
from inception through December 31, 1992.............. 60,000 1,200 2,800 4,000
Net loss for the year ended December 31, 1992........... $ (77,972) (77,972)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1992.............................. 675,000 13,500 31,500 (77,972) (32,972)
Additional shares sold at $.07 per share................ 1,200,000 24,000 56,000 80,000
Shares issued for services at $.07
per share............................................. 162,000 3,240 7,560 10,800
Sale of common stock in connection with private
placement of stock at $.67 per share.................. 960,000 19,200 620,800 640,000
Costs related to private placement...................... (36,530) (36,530)
Shares issued for services at $.67 per share............ 9,000 180 5,820 6,000
Net loss for the year ended
December 31, 1993..................................... (354,333) (354,333)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1993.............................. 3,006,000 60,120 685,150 (432,305) 312,965
Repurchase of common stock by the Company and
cancellation of shares................................ (15,000) (300) (700) (1,000)
Common stock warrants issued in connection with notes
payable............................................... 6,750 6,750
Net loss for the year ended December 31, 1994........... (523,007) (523,007)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1994.............................. 2,991,000 59,820 691,200 (955,312) (204,292)
Sale of common stock at $.83 per share.................. 540,000 10,800 439,200 450,000
Costs of raising capital................................ (12,250) (12,250)
Purchase (for $8,000) and resale
(for $20,000) of 60,000 shares of common stock........ 12,000 12,000
Common stock warrants issued in connection with notes
payable............................................... 3,750 3,750
Net loss for the year ended December 31, 1995........... (417,149) (417,149)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1995.............................. 3,531,000 70,620 1,133,900 (1,372,461) (167,941)
Shares issued for services at $1.00 per share........... 25,066 501 24,565 25,066
Conversion of debt into common stock.................... 210,000 4,200 201,700 205,900
Sale of common stock in connection with private
placement of stock at $2.33 per share................. 235,710 4,714 545,286 550,000
Sale of common stock in connection with an agreement at
$2.33 per share (Note E).............................. 214,287 4,286 495,714 500,000
Common stock warrants issued (Note E)................... 190,000 190,000
Amount allocated to conversion privilege (Note E)....... 130,000 130,000
Costs allocated to stock issued (Note E)................ (31,050) (31,050)
Net loss for the year ended December 31, 1996........... (403,391) (403,391)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1996.............................. 4,216,063 $ 84,321 $ 2,690,115 $ (1,775,852) $ 998,584
---------- --------- ------------ ------------- -----------
---------- --------- ------------ ------------- -----------
</TABLE>
Attention is directed to the accompanying notes to financial statements.
F-5
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 9, 1992
DECEMBER 31, 1996 (INCEPTION)
------------------------- THROUGH
1995 1996 DECEMBER 31,
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (417,149) $ (403,391) $(1,775,852)
Adjustments to reconcile net loss to net cash (used in) operating
activities:
Depreciation and amortization....................................... 1,049 2,964 8,110
Common stock issued for services rendered........................... 25,066 45,866
Organization costs.................................................. (5,245)
Increase in accounts payable and accrued expenses................... 163,071 66,256 306,517
----------- ------------ -------------
Net cash (used in) operating activities........................... (253,029) (309,105) (1,420,604)
----------- ------------ -------------
Cash flows from investing activities:
Purchase of equipment................................................. (4,151) (4,151)
----------- ------------ -------------
Cash flows from financing activities:
Sale of common stock.................................................. 445,000 1,050,000 2,256,000
Stock offering costs.................................................. (12,250) (31,050) (79,830)
Repurchase of common stock............................................ (8,000) (9,000)
Proceeds from notes payable........................................... 75,000 210,000
Proceeds from royalty purchase agreement (Note E)..................... 500,000 500,000
Deferred public offering costs........................................ (198,165) (198,165)
----------- ------------ -------------
Net cash provided by financing activities......................... 499,750 1,320,785 2,679,005
----------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 246,721 1,007,529 1,254,250
Cash and cash equivalents at beginning of period........................ 246,721
----------- ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................. $ 246,721 $ 1,254,250 $ 1,254,250
----------- ------------ -------------
----------- ------------ -------------
Supplemental disclosures of cash flow information:
Interest paid......................................................... 15,000 $ 49,311 64,311
Accounts payable converted into stock................................. 25,000 25,000
Notes payable converted to common stock............................... 210,000 210,000
</TABLE>
Attention is directed to the accompanying notes to financial statements.
F-6
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(NOTE A)--THE COMPANY:
Apollo BioPharmaceutics, Inc. (formerly Apollo Genetics, Inc.) (the
"Company"), was incorporated on July 9, 1992. The Company's objective is to
develop biopharmaceutical products for deterring aspects of human aging.
The Company is in the development stage and its efforts through December
31, 1996 have been principally devoted to organizational activities, raising
capital and initial research and development activities. It does not expect
commercial operations in the foreseeable future. The Company anticipates that it
will need substantial additional financing to complete its research and to
develop commercial products. The Company is endeavoring to obtain additional
financing for the next phase of its research activities; however, there is no
assurance that such financing can be obtained or that the Company's research
will be successful.
In December of 1996 the Company filed a registration statement with the
Securities and Exchange Commission for the initial public offering of shares of
the Company's common stock.
During 1996, the Company amended its Certificate of Incorporation
whereby, among other things, the following changes were effected:
[1] The name of the Company was changed from Apollo Genetics, Inc. to Apollo
BioPharmaceutics, Inc.
[2] A reverse stock split of 1 for 3 1/3 shares of common stock and all
securities of the Company convertible into common stock was made.
[3] The number of authorized shares of the Company's preferred stock was
reduced from 4,000,000 to 1,000,000 shares.
All references to preferred stock, common stock, options, warrants and
per share data have been restated to give effect to the above amendments to the
Certificate of Incorporation.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] REVENUE RECOGNITION:
Licensing and option fees are recognized when they are earned in
accordance with the performance requirements and contractual terms of the
underlying agreements. Licensing revenue represents amounts paid by companies
for the use of or access to the Company's proprietary technology. Option revenue
represents payments for the right to negotiate with the Company which may or may
not result in a licensing or collaborative development agreement.
[2] ORGANIZATION COSTS:
The Company has capitalized certain costs, primarily legal expenses,
related to its organization. These costs are being amortized by the
straight-line method over five years.
[3] PATENT AND LICENSING COSTS:
As a result of research and development efforts conducted by the
Company, it has received and applied for, and is in the process of applying for,
a number of patents to protect proprietary inventions and
F-7
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
licenses to use certain intellectual property. Costs incurred in connection with
patent applications and licenses have been expensed as incurred and are
reflected as general and administrative expenses.
[4] 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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
[5] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity of
three months or less, when acquired, to be cash equivalents.
[6] LOSS PER SHARE:
Loss per share is calculated based on the weighted average number of
shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common shares, or other
potentially dilutive instruments issued by the Company during the twelve months
immediately preceding the expected initial filing of the registration statement
for the Company's proposed initial public offering at prices below the expected
public offering price have been included in the calculation as if they were
outstanding for all periods presented.
Assuming the conversion of the notes discussed in the last sentence of
Note D as of January 1, 1995, there would have been no effect on the
supplementary loss per share for any period presented.
[7] RECENT PRONOUNCEMENT:
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has adopted the disclosure requirements
of SFAS 123 during the Company's fiscal year ended December 31, 1996, but will
account for its employee stock option plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted under
SFAS 123.
(NOTE C)--NOTES PAYABLE:
During 1994 and 1995, the Company issued $135,000 and $75,000 of 10%
convertible notes payable, respectively. The conversion price of $1.00 per share
was no less than the fair market value of the underlying stock at the time of
the Company's issuance of the notes. The principal amount of the notes
outstanding was $210,000 at December 31, 1995. During 1996, all $210,000 of the
notes were converted into 210,000 shares of common stock. In conjunction with
these notes, the Company issued warrants for the purchase of 210,000 shares of
its common stock. The value assigned to the warrants, amounting to $10,500, has
been accounted for as debt discount and was amortized over the period of time
the notes were outstanding. The effective interest rate on the notes, including
the debt discount, was approximately 12%. The warrants are more fully discussed
in Note D[3].
F-8
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE D)--COMMON STOCK, OPTIONS AND WARRANTS:
[1] COMMON STOCK:
Through December 31, 1996, the Company has been financed primarily
through the sale of common stock. Through December 31, 1996, of the 4,216,063
shares issued since inception, 3,959,997 were sold for cash and the remaining
256,066 shares were issued for payment of services rendered to the Company.
[2] OPTION PLAN:
The Company has a stock option plan that provides for the issuance of
both incentive and nonqualified stock options. This plan provides for the
granting of options to purchase not more than 600,000 shares of common stock. In
1996, the Company's Board of Directors also authorized the establishment of the
1996 Directors Stock Option Plan, and reserved 90,000 shares of the Company's
common stock for issuance under the Plan. The exercise price of the incentive
options cannot be less than the fair market value on the date of the grant,
while the exercise price for the nonqualified and Directors plan options is
determined by the option committee.
Option activity for all plans through December 31, 1996 has been as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ------------
<S> <C> <C>
Balance--December 31, 1992.......................................... -0- $-0-
Granted............................................................. 60,000 $.67
-----------
Balance--December 31, 1993.......................................... 60,000 $.67
Granted............................................................. 150,000 $.87
-----------
Balance--December 31, 1994.......................................... 210,000 $.81
Cancelled........................................................... (90,000) $.73
Granted............................................................. 180,000 $.83
-----------
Balance--December 31, 1995.......................................... 300,000 $.85
Granted............................................................. 54,000 $2.67
-----------
Balance--December 31, 1996.......................................... 354,000 $1.13
-----------
-----------
</TABLE>
At December 31, 1996, options to purchase 287,000 shares were
exercisable at an average exercise price of $.92 per share at prices ranging
from $.67 to $2.67 per share. The weighted-average contractual life is
approximately 9 years.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
There was no compensation expense recognized in 1995 or 1996. If the Company had
elected to recognize compensation cost for the plans based on the fair value at
the
F-9
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE D)--COMMON STOCK, OPTIONS AND WARRANTS: (CONTINUED)
grant date for awards under the plans, consistent with the method prescribed by
SFAS No. 123, net loss per share would have been changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C> <C>
Net loss As reported $ (417,149) $ (403,391)
Pro forma $ (445,999) $ (449,762)
Net loss per share As reported $ (.11) $ (.10)
Pro forma $ (.12) $ (.11)
</TABLE>
The fair value of the Company's stock options used to compute pro forma
net loss and net loss per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1995 and 1996: dividend yield of 2.5%; expected
volatility of 30%; a risk free interest rate of 7.5%; and an expected holding
period of ten years.
The weighted-average grant date fair value of options granted was $1.09
per share and $.41 per share for the years ended December 31, 1995 and 1996,
respectively.
[3] WARRANTS:
In conjunction with the notes described in Note C, the Company issued
warrants for the purchase of 210,000 shares of the Company's common stock. The
warrants are exercisable until September 17, 1999 with respect to 135,000
warrants and until April 30, 2000 with respect to 75,000 warrants, all at the
lower of $1.00 per share or the price per share of the common stock at the
closing of the next offering of common stock with aggregate gross proceeds of at
least $1,000,000. The number of shares which may be purchased upon the exercise
of these warrants are subject to adjustment as provided in the warrant agreement
for such events as stock splits and stock dividends.
In conjunction with the Royalty Purchase Agreement described in Note E,
the Company issued warrants for the purchase of 150,000 shares of the Company's
common stock. The warrants are exercisable until November, 2003 at an exercise
price of $2.33 per share with respect to 105,000 shares of Common Stock and an
exercise price of $2.92 per share with respect to 45,000 shares of Common Stock.
The value assigned to the warrants, amounting to $190,000, has been credited to
additional paid-in capital. the number of shares which may be purchased upon the
exercise of these warrants are subject to adjustment as provided in the warrant
agreement for such events as stock splits and stock dividends.
(NOTE E)--COMMITMENTS:
[1] LEASE:
The Company is subleasing its facilities under a tenant-at-will
agreement. Rent expense for the year ended December 31, 1995 and December 31,
1996 amounted to $5,850 and $12,430, respectively.
[2] COLLABORATIVE AGREEMENTS:
The Company has entered into various research, license, royalty and
consulting agreements to support its research and development activities. These
agreements generally expire over several future
F-10
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--COMMITMENTS: (CONTINUED)
years. Amounts charged to operations in connection with these agreements for the
year ended December 31, 1995 and 1996 amounted to approximately $55,000 and
$106,000, respectively. The Company expects to increase its research and
development expenses in future years.
In 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited
partnership of which MDS Associes-NeuroscienceInc. ("MDS") is the general
partner, invested $500,000 in the Company in exchange for 214,287 shares of
Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in 1996, the Company entered into a Royalty Purchase Agreement with
NPLP, pursuant to which NPLP agreed to provide an additional $500,000 (the "NPLP
Development Financing") to the Company. In exchange for the NPLP Development
Financing, the Company is obligated to pay NPLP royalties on sales of, and
license fees and other revenues received by the Company in connection with, any
products developed that relate to the use of estrogen in the treatment of
chronic, neurodegenerative diseases. The Company's obligations to pay royalties
cease when royalty payments reach certain aggregate amounts. In connection with
the NPLP Development Financing, NPLP received warrants to purchase 150,000
shares of Common Stock. The warrants are more fully discussed in Note D[3]. All
or any portion (not less than $150,000) of the aggregate amount of the NPLP
Development Financing may be converted at any time at the option of MDS into
shares of Common Stock at a conversion price equal to (i)with respect to 50% of
the amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b)
the price per share of Common Stock reflected in the Company's most recent
financing prior to any conversion and (ii) with respect to the remaining 50% of
the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b)
the price per share of the Common Stock reflected in the Company's most recent
equity financing prior to any conversion. The value assigned to the conversion
privilege, amounting to $130,000, has been credited to additional paid-in
capital. The Royalty Purchase Agreement will continue until the later of (i) ten
years from the date of first commercial sale of any product covered by the
Agreement and (ii) the expiration of the last relevant patent right covered by
the Agreement.The $500,000 received under the royalty purchase agreement was
allocated as follows:
<TABLE>
<S> <C>
Royalty obligation................. $180,000
Warrants........................... 190,000
Conversion privilege............... 130,000
--------
Total.......................... $500,000
--------
--------
</TABLE>
The amount allocated to the royalty obligation will be amortized into
income over the period that the Company is obligated to pay such amounts under
the agreement.
[3] EMPLOYMENT AGREEMENT:
The Company has entered into an employment agreement, which expires in
November 1998, with its president which provides for a current annual salary of
$130,000 and twelve months of severance pay. The agreement will automatically
extend for additional two-year periods unless terminated by either party to the
agreement.
F-11
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE F)--INCOME TAXES:
Through January 1996, pursuant to the provisions of the Internal Revenue
Code, the Company had been deferring all start-up costs because operations, as
defined by the Code, had not commenced. In addition, the Company has elected to
defer all research and development costs and amortize them over a five year
period beginning with the commencement of business. Effective February 1996, the
Company began generating revenue and commenced operations for tax purposes.
Accordingly, for tax purposes, the Company is amortizing all start-up and
research and development costs incurred through January, 1996 over 60 months and
from February 1996 forward will expense operating costs as incurred while
continuing to capitalize and amortize research and development costs incurred.
At December 31, 1996, the Company had no current or deferred tax
liability. It had deferred tax assets due to temporary differences and net
operating loss carryforwards totaling approximately $650,000, all of which has
been fully reserved since the likelihood of the realization of the benefits
cannot be established. The temporary differences relate primarily to the
deferral of the start-up costs and research and development costs noted above.
The Internal Revenue Code contains provisions which may limit the net
operating loss carryovers and built-in losses available for use in any given
year if significant changes in ownership interest of the Company occur.
(NOTE G)--RELATED PARTY TRANSACTION:
The Company has entered into a research and development agreement with a
corporation in which the acting CEO of the corporation is also a Director of the
Company and its Vice President of Business Development.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 25
Management................................................................ 41
Certain Transactions...................................................... 46
Principal Stockholders.................................................... 47
Description of Securities................................................. 49
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 57
Glossary of Technical Terms............................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,200,000 UNITS
[LOGO]
---------------------
PROSPECTUS
, 1997
---------------------
FIRST UNITED EQUITIES CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful, provided,
however, no indemnification shall be made in connection with any proceeding
brought by or in the right of the Company where the person involved is adjudged
to be liable to the Company, except to the extent approved by a court. Article V
of the Company's By-laws provides that the Company shall, to extent legally
permitted, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he or she is or was, or has agreed to become, a
director or officer of the Company, or is or was serving, or has agreed to
serve, at the request of the Company, as a director, officer or trustee of, or
in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise. The indemnification provided for in Article V is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement or vote of stockholders
or disinterested directors or otherwise, and shall inure to the benefit of the
heirs, executors and administrators of such persons. Article V also provides
that the Company shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company, as a director,
officer or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against and incurred by such person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Laws,
Articles SEVENTH and NINTH of the Company's Amended and Restated Certificate of
Incorporation eliminates a director's personal liability for monetary damages to
the Company and its stockholders for breaches of fiduciary duty as a director,
except in circumstances involving a breach of a director's duty of loyalty to
the Company or its stockholders, acts or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
The Company has also entered into Indemnification Agreements with each
of its directors whereby the Company has agreed to indemnify them against
certain liabilities that they may incur as a result of their services to the
Company.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the Company in connection with this offering
are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 5,655
Nasdaq listing fee................................................ $ 7,880
NASD filing fee................................................... $ 2,366
Blue Sky fees and expenses........................................ $ 15,000
Printing and engraving expenses................................... $ 112,000
Accounting fees and expenses...................................... $ 40,000
Legal fees and expenses........................................... $ 200,000
Transfer agent and registrar fees................................. $ 10,000
Managing Underwriter's expenses................................... $ 189,000
Miscellaneous expenses............................................ $ 8,099
---------
Total......................................................... $ 590,000
</TABLE>
All of the above figures, except the SEC registration fee and NASD
filing fee, are estimates.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1992, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to Section 4(2) of the Securities Act:
In September 1992, the Company sold an aggregate of 615,000 shares of
Common Stock to 14 accredited investors for an aggregate purchase price of
$41,000.
In order to fund its continuing operations, the Company completed two
bridge financings, one in September 1994 (the "1994 Bridge Financing") and one
in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge
Financing, the Company issued (i) an aggregate of $135,000 in principal amount
of Convertible Promissory Notes (the "1994 Notes") which were due on the earlier
of September 19, 1996 or the closing by the Company of a private placement
financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants
to purchase an aggregate of 135,000 shares of the Company's Common Stock
exercisable at $1.00 per share. In connection with the 1995 Bridge Financing,
the Company issued (i) an aggregate of $75,000 in principal amount of
Convertible Promissory Notes (the "1995 Notes") which were due on the earlier of
April 30, 1997 or the closing by the Company of a private placement financing
yielding gross proceeds of not less than $1,000,000 and (ii) warrants to
purchase an aggregate of 75,000 shares of the Company's Common Stock exercisable
at $1.00 per share. In September 1996, the 1994 Notes were converted into
135,000 shares of Common Stock and, in December 1996, the 1995 Notes were
converted into 75,000 shares of Common Stock.
In May 1995, the Company sold an aggregate of 540,000 shares of Common
Stock to 8 accredited investors for an aggregate purchase price of $475,000.
In June 1996, the Company sold an aggregate of 214,282 shares of Common
Stock to 9 accredited investors for an aggregate purchase price of $550,000. The
Managing Underwriter acted as placement agent for this 1996 financing and in
consideration thereof received a fee of $25,000.
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the
general partner, invested $500,000 in the Company in exchange for 214,287 shares
of Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP agreed to provide an additional
$500,000 (the "NPLP Development Financing") in the Company to fund the continued
research and development of the Company's programs related to the use of
estrogen in the treatment of certain chronic neurodegenerative diseases,
including Alzheimer's
II-2
<PAGE>
disease. In exchange for the NPLP Development Financing, the Company is
obligated to pay NPLP royalties based upon a certain percentage of revenues
earned from sales of, and license fees and other revenues received by the
Company in connection with, any products developed in these programs. The
Company has the right to terminate its obligation to make such royalty payments
to NPLP upon written notice to NPLP on or before November 30 in any of the
calendar years specified in the Royalty Purchase Agreement and by paying NPLP a
lump-sum payment equal to the maximum royalties payable in such calendar year.
In connection with the NPLP Development Financing, NPLP received (i) warrants to
purchase 105,000 shares of Common Stock at an exercise price of $2.33 per share
and (ii) warrants to purchase 45,000 shares of Common Stock at an exercise price
of $2.92 per share. All or any portion (not less than $150,000) of the Company's
future obligations to pay royalties may be converted at any time at the option
of MDS into shares of Common Stock at a conversion price equal to (i) with
respect to that portion of such royalties as is equal to up to 50% of the amount
of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the price per
share of the Common Stock reflected in the Company's most recent financing prior
to any conversion and (ii) with respect to that portion of such royalties as is
equal to the remaining 50% of the amount of the NPLP Development Financing, the
lesser of (a) $3.50 and (b) the price per share of the Common Stock reflected in
the Company's most recent equity financing prior to any conversion. If NPLP were
to exercise its warrants and conversion rights in full, NPLP would beneficially
own 521,429 shares of the Company's Common Stock (or approximately 9.1% of the
common stock outstanding). See "Principal Stockholders."
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement. Filed herewith.
3.1 Amended and Restated Certificate of Incorporation. Filed on December 24, 1996 as Exhibit 3.1 to this
Registration Statement.
3.2 By-laws of the Company. Filed on December 24, 1996 as Exhibit 3.2 to this Registration Statement.
3.3 Registration Rights Agreement, dated December 18, 1996, between the Company and Neuroscience Partners
Limited Partnership. Filed on December 24, 1996 as Exhibit 3.3 to this Registration Statement.
3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited Partnership
dated December 18, 1996. Filed on December 24, 1996 as Exhibit 3.4 to this Registration Statement.
4.1 Specimen Common Stock Certificate. Filed on February 6, 1997 as Exhibit 4.1 to this Registration
Statement.
4.2 Specimen Common Stock Purchase Warrant. Filed on February 6, 1997 as Exhibit 4.2 to this
Registration Statement.
5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed on December
24, 1996 as Exhibit 5 to this Registration Statement.
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed on December 24, 1996
as Exhibit 10.1 to this Registration Statement.
10.2* 1996 Director Stock Option Plan. Filed on December 24, 1996 as Exhibit 10.2 to this Registration
Statement.
10.3 Form of Indemnification Agreement between the Company and its directors. Filed on December 24, 1996
as Exhibit 10.3 to this Registration Statement. Such agreements are materially different only as to
the signing directors and the dates of execution.
10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners
Limited Partnership. Filed herewith.
10.5 License, Research and Collaboration Agreement, dated as of December 13, 1996, between the Company and
Endocon, Inc. Filed herewith.
10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and Cephalon,
Inc. Filed on December 24, 1996 as Exhibit 10.6 to this Registration Statement.
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena
Neurosciences, Inc. Filed herewith.
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and
the University of Kentucky Research Foundation. Filed herewith.
10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15, 1996,
between the Company and the University of Florida Research Foundation, Inc. Filed herewith.
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the
Company and the University of Florida. Filed herewith.
10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida
Research Foundation, Inc. Filed herewith.
10.12* Employment Agreement effective as of November 1, 1993, between the Company and Dr. Katherine
Gordon. Filed on December 24, 1996 as Exhibit 10.12 to this Registration Statement.
10.13* Letter Agreement dated as of November 10, 1996 between the Company and John J. Curry. Filed herewith.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.14* Letter Agreement dated as of May 15, 1996 between the Company and Robert J. Leonard. Filed herewith.
10.15 Form of Warrant Agreement between the Company and American Stock Transfer and Trust Company. Filed
herewith.
10.16 Form of Representative's Warrant Agreement between the Company and First United Equities Corporation.
Filed herewith.
10.17 Form of Financial Advisory Agreement between the Company and First United Equities Corporation. Filed
herewith.
11 Statement re: Computation of loss per share. Filed herewith.
23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5 hereto.
24 Power of attorney. Included on the signature page hereto on December 24, 1996.
27 Financial Data Schedule. Filed on February 24, 1997 as Exhibit 27 to this Registration Statement.
</TABLE>
- ------------------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under "Item
24--Indemnification of Directors and Officers" 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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on
March 14, 1997.
APOLLO BIOPHARMACEUTICS, INC.
BY: /S/ KATHERINE GORDON
-----------------------------------------
Katherine Gordon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ KATHERINE GORDON Officer and Director
- ------------------------------ (Principal Executive March 14, 1997
Katherine Gordon Officer)
Vice President--Finance,
Chief Financial Officer
JOHN J. CURRY* and Treasurer (Principal
- ------------------------------ Financial Officer and March 14, 1997
John J. Curry Principal Accounting
Officer)
ROBERT J. LEONARD* Vice President--Business
- ------------------------------ Development, Director March 14, 1997
Robert J. Leonard
THEODORE GORDON* Director
- ------------------------------ March 14, 1997
Theodore Gordon
DONALD WEISE* Director
- ------------------------------ March 14, 1997
Donald Weise
GEORGE MASTERS* Director
- ------------------------------ March 14, 1997
George Masters
<TABLE>
<S> <C>
* /s/ KATHERINE GORDON
----------------------------------------
Katherine Gordon
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -------- PAGE
----
<C> <S> <C>
1 Form of Underwriting Agreement. Filed herewith...........................................................
3.1 Amended and Restated Certificate of Incorporation. Filed on December 24, 1996 as Exhibit 3.1 to this
Registration Statement...................................................................................
3.2 By-laws of the Company. Filed on December 24, 1996 as Exhibit 3.2 to this Registration Statement.........
3.3 Registration Rights Agreement, dated December 18, 1996, between the Company and Neuroscience Partners
Limited Partnership. Filed on December 24, 1996 as Exhibit 3.3 to this Registration Statement...........
3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited Partnership
dated December 18, 1996. Filed on December 24, 1996 as Exhibit 3.4 to this Registration Statement.......
4.1 Specimen Common Stock Certificate. Filed on February 6, 1997 as Exhibit 4.1 to this Registration
Statement................................................................................................
4.2 Specimen Common Stock Purchase Warrant. Filed on February 6, 1997 as Exhibit 4.2 to this
Registration Statement...................................................................................
5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed on December
24, 1996 as Exhibit 5 to this Registration Statement.....................................................
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed on December 24, 1996
as Exhibit 10.1 to this Registration Statement...........................................................
10.2* 1996 Director Stock Option Plan. Filed on December 24, 1996 as Exhibit 10.2 to this Registration
Statement................................................................................................
10.3 Form of Indemnification Agreement between the Company and its directors. Filed on December 24, 1996
as Exhibit 10.3 to this Registration Statement. Such agreements are materially different only as to
the signing directors and the dates of execution.........................................................
10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners
Limited Partnership. Filed herewith.....................................................................
10.5 License, Research and Collaboration Agreement, dated as of December 13, 1996, between the Company and
Endocon, Inc. Filed herewith............................................................................
10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and Cephalon,
Inc. Filed on December 24, 1996 as Exhibit 10.6 to this Registration Statement..........................
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena
Neurosciences, Inc. Filed herewith......................................................................
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and
the University of Kentucky Research Foundation. Filed herewith..........................................
10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15, 1996,
between the Company and the University of Florida Research Foundation, Inc. Filed herewith..............
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the
Company and the University of Florida. Filed herewith...................................................
10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida
Research Foundation, Inc. Filed herewith................................................................
10.12* Employment Agreement effective as of November 1, 1993, between the Company and Dr. Katherine
Gordon. Filed on December 24, 1996 as Exhibit 10.12 to this Registration Statement......................
10.13* Letter Agreement dated as of November 10, 1996 between the Company and John J. Curry. Filed herewith......
10.14* Letter Agreement dated as of May 15, 1996 between the Company and Robert J. Leonard. Filed herewith.......
10.15 Form of Warrant Agreement between the Company and American Stock Transfer and Trust Company. Filed
herewith.................................................................................................
10.16 Form of Representative's Warrant Agreement between the Company and First United Equities Corporation.
Filed herewith...........................................................................................
10.17 Form of Financial Advisory Agreement between the Company and First United Equities Corporation. Filed
herewith.................................................................................................
11 Statement re: Computation of loss per share. Filed herewith..............................................
23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith..............................................
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5 hereto..........................
24 Power of attorney. Included on the signature page hereto on December 24, 1996.............................
27 Financial Data Schedule. Filed on February 24, 1997 as Exhibit 27 to this Registration Statement.........
</TABLE>
- ------------------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
<PAGE>
Exhibit 1
[Form of Underwriting Agreement]
1,200,000 Shares of Common Stock
and
1,200,000 Redeemable Warrants
Apollo BioPharmaceutics, Inc.
UNDERWRITING AGREEMENT
Garden City, New York
____________, 1997
First United Equities Corporation
As Representative of the
Several Underwriters listed on Schedule A hereto
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Ladies and Gentlemen:
Apollo BioPharmaceutics, Inc., a Delaware corporation (the "Company"),
confirms its agreement with First United Equities Corporation ("First United")
and each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 12 hereof), for whom First United is acting as
representative (in such capacity, First United shall hereinafter be referred to
as "you" or the "Representative"), with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.02 par
value par share ("Common Stock"), and redeemable warrants ("Redeemable
Warrants"), each such Redeemable Warrant entitling the registered holder thereof
to purchase one share of Common Stock, set forth in Schedule A hereto. Pursuant
to, and subject to certain conditions set forth in, the agreement (the "Warrant
Agreement") between the Company and American Stock Transfer and Trust Company
(the "Warrant Agent"), each Redeemable Warrant is exercisable from _______, 1997
(the date of the Prospectus, as defined herein) until ____________, 2002 (five
years after the date of the Prospectus, as defined herein) at an initial
exercise price (subject to adjustment as set forth in the Warrant Agreement)
equal to $___ per share of Common Stock (130% of the initial public offering
price thereof), and is redeemable at the Company's election for a period of four
years commencing 12 months after the date hereof. Such Shares and Redeemable
Warrants are hereinafter referred to as the "Firm Securities."
1
<PAGE>
Upon your request, as provided in Section 3(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 180,000 shares of Common Stock and/or up to an additional
180,000 Redeemable Warrants for the purpose of covering over-allotments, if any.
Such 180,000 additional shares of Common Stock and 180,000 additional Redeemable
Warrants are hereinafter referred to as the "Option Securities," and together
with the Firm Securities are hereinafter referred to as the "Securities." The
shares of Common Stock issuable upon exercise of the Redeemable Warrants are
hereinafter sometimes referred to as the "Redeemable Warrant Shares."
The Company also proposes to issue and sell to you certain warrants (the
"Managing Underwriter's Warrants") pursuant to the Representative's Warrant
Agreement (the "Representative's Warrant Agreement") to be dated as of the
Closing Date (as hereinafter defined) for the purchase of up to an additional
120,000 shares of Common Stock, each such Managing Underwriter's Warrant
entitling the registered holder thereof to purchase one share of Common Stock
and being substantially identical to the Redeemable Warrants, except that, so
long as the Managing Underwriter's Warrants are held by the Representative or
any affiliate thereof, the Managing Underwriter's Warrants shall not be
redeemable by the Company. The Managing Underwriter's Warrants and the shares of
Common Stock issuable upon exercise of the Managing Underwriter's Warrants are
hereinafter referred to as the "Representative's Securities." The Securities and
the Representative's Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
You represent and warrant that you have been authorized by each of the
other Underwriters to enter into this Agreement on its behalf and to act for it
in the manner herein provided.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each of the
Underwriters as of the date hereof, and as of the Closing Date and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-18769), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities and the Redeemable Warrant Shares under the Securities Act of 1933,
as amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Rules and Regulations") of the
Commission under the Act. The Company will not file any amendment thereto to
which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time such
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
or incorporated therein (including without limitation those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration
2
<PAGE>
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
For the purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to EDGAR.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any of any Preliminary Prospectus,
the Registration Statement, or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or, to the best knowledge of the Company after due inquiry, threatened. Each of
the Preliminary Prospectus, the Registration Statement, and the Prospectus at
the time of filing thereof conformed in all material respects with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement, or the Prospectus at the
time of filing thereof contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
does not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriters by or on behalf of any Underwriter expressly for use in the
Preliminary Prospectus, Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and as of each
Closing Date and each Option Closing Date, if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, each of the Registration Statement and the
Prospectus will conform in all material respects to the requirements of the Act
and the Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company with respect to the Underwriters by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of Delaware. Except as
set forth in the Prospectus, the Company does not own an interest in any
corporation, partnership, limited liability company, trust, joint venture or
other business entity. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations require such
qualification or licensing (except where the failure to be so qualified would
not have a Material Adverse Effect (as hereinafter defined)). The Company has
all requisite power and authority (corporate and other), and has
3
<PAGE>
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises, and permits of and from all governmental or regulatory
authorities (including without limitation those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; to the Company's knowledge, the
Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations;
and the Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise or permit that, if the subject of an unfavorable
decision, ruling or finding, could, individually or in the aggregate, have a
Material Adverse Effect (as hereinafter defined). For purposes of this
Agreement, "Material Adverse Effect" means any circumstance, change in or effect
on the Company that, individually or in the aggregate with any other
circumstance, change in or effect on the Company is, or could be, materially
adverse to the condition (financial or otherwise), earnings, position,
prospects, value, operation, properties, employee relationships, customer or
supplier relationships, liabilities, business or results of operations of the
Company.
(e) The Company has the duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and "Description of Securities" and will have the adjusted capitalization set
forth therein on the Closing Date, if any, based upon the assumptions set forth
therein (except that the effects of the exercise of the Underwriters'
over-allotment option are not reflected therein). The Company is not a party to
or bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, warrants, options or other securities, or any rights
with respect thereto, except for this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and as described in the Prospectus. All
issued and outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
was issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by or binding upon the
Company. The Securities, the Redeemable Warrant Shares and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder of the Company or any other person, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof (and to the extent applicable, of the Warrant Agreement and the
Representative's Warrant Agreement), will be validly issued, fully paid, and
non-assessable and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issuance, and sale of the Securities, the Redeemable Warrant Shares and the
Representative's Securities has been duly and validly taken; and the
certificates evidencing the Shares will be in due and proper form.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus present fairly, in all material
respects, the financial position, income, changes in cash flow, changes in
stockholders' equity, and the results of operations of the Company at the
respective dates and for the respective periods to which they apply and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. The pro forma financial
4
<PAGE>
statements and other pro forma financial information (including the notes
thereto) included in the Registration Statement and the Prospectus (A) present
fairly, in all material respects, the information shown therein, (B) have been
prepared, in all material respects, in accordance with the applicable
requirements of Item 310 of Regulation S-B promulgated under the Exchange Act,
(C) have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, and (D) have been properly
compiled on the bases described therein, and the assumptions used in the
preparation of the pro forma financial statements and other pro forma financial
information and included in the Registration Statement and the Prospectus are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein. There has been no
Material Adverse Effect on the Company since the date of the financial
statements included in the Registration Statement and the Prospectus and the
outstanding debt, the property (both tangible and intangible), and business of
the Company conform in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," present fairly, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign taxes
for which it is liable (other than such taxes as are being contested in good
faith for which adequate reserves have been established) including, without
limitation withholding taxes and amounts payable under Chapters 21 through 24 of
the Internal Revenue Code of 1986, as amended (the "Code"), and has duly filed
all information returns it is required to file pursuant to the Code, (ii) has
established adequate reserves for such taxes that are not due and payable, and
(iii) does not have any material tax deficiency or claims outstanding, proposed
or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Securities, the Redeemable Warrant Shares or the Representative's
Securities, (ii) the purchase by the Underwriters of the Securities, and the
purchase and exercise by the Representative of the Managing Underwriter's
Warrants, (iii) the purchase of the Redeemable Warrant Shares in connection with
the exercise of the Redeemable Warrants, and the purchase of the Common Stock
purchasable upon exercise of the Managing Underwriter's Warrants, (iv) the
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement, the Managing
Underwriter's Warrants or the Redeemable Warrants, (v) the initial sale to the
public of the Securities or (vi) resales of the Securities in connection with
the distribution contemplated hereby.
(i) The Company maintains insurance policies, including without limitation
general liability and property insurance, that insure the Company and its
employees and agents against such losses and risks as are generally insured
against by comparable businesses. The Company has not failed to give notice or
present any insurance claim with respect to any matter, including without
limitation to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner and has failed to pay any
premiums due and payable thereunder. To the best knowledge of the Company after
due inquiry, there are no facts or
5
<PAGE>
circumstances under any such insurance policy or surety bond that would relieve
any insurer of its obligation to satisfy in full any otherwise valid claim of
the Company.
(j) Except as disclosed in the Registration Statement, there is no action,
suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental proceeding (including without limitation those having jurisdiction
over environmental or similar matters), domestic or foreign, pending or, to the
best knowledge of the Company after due inquiry, threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of, the Company that (i) questions the validity of the capital stock of
the Company, this Agreement, the Warrant Agreement, the Representative's Warrant
Agreement, the Managing Underwriter's Warrants, the Redeemable Warrants, or any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement, the Warrant Agreement, the Representative's Warrant Agreement,
the Managing Underwriter's Warrants or the Redeemable Warrants, or (ii) could,
if adversely determined, have a Material Adverse Effect.
(k) The Company has full legal right, power, and authority to issue,
deliver, and sell the Securities, the Redeemable Warrant Shares and the
Representative's Securities, and to enter into this Agreement, the Warrant
Agreement, the Representative's Warrant Agreement, the Managing Underwriter's
Warrants and the Redeemable Warrants, and to consummate the transactions
provided for in such agreements; and this Agreement has been duly and properly
authorized, executed and delivered by the Company; and the Warrant Agreement,
the Representative's Warrant Agreement, the Redeemable Warrants and the Managing
Underwriter's Warrants have been duly authorized by the Company and will be duly
executed and delivered by the Company at the Closing. This Agreement
constitutes, and each of the Warrant Agreement, the Representative's Warrant
Agreement, the Redeemable Warrants, and the Managing Underwriter's Warrants,
when delivered at the Closing or any Option Closing will constitute, the legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms; and none of the Company's issue and sale of the
Securities, the Redeemable Warrant Shares or the Representative's Securities,
its execution or delivery of this Agreement, the Warrant Agreement, the Managing
Underwriter's Warrants, the Representative's Warrant Agreement, the Redeemable
Warrants or the Managing Underwriter's Warrants, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with, or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any Lien of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of (i) the certificate of incorporation or by-laws, in
each case as amended to date, of the Company, (ii) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement, or any other agreement or instrument
to which the Company is a party or by which it is bound or to which any of its
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation,
applicable to the Company, of any arbitrator, court, regulatory body, or
administrative agency or other governmental agency or body (including without
limitation those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
6
<PAGE>
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court or governmental or
regulatory authority, domestic or foreign, or any other person or entity, is
required for the issuance of the Securities, the Redeemable Warrant Shares and
the Representative's Securities pursuant to the Prospectus and the Registration
Statement, the performance of the Company's obligations under this Agreement,
the Warrant Agreement, the Redeemable Warrants, the Representative's Warrant
Agreement and the Managing Underwriter's Warrants, and the transactions
contemplated hereby and thereby, including without limitation any waiver of any
preemptive, first refusal or other rights that any person or entity may have for
the issue and/or sale of any of the Securities, the Redeemable Warrant Shares or
the Representative's Securities, except such as have been or may be obtained
under the Act or may be required under the state securities or blue sky laws
("Blue Sky laws"), in connection with the Underwriters' purchase and
distribution of the Securities, the purchase of the Redeemable Warrant Shares to
be sold by the Company under the Redeemable Warrants, and the purchase of the
Representative's Securities to be sold by the Company under the Representative's
Warrant Agreement and the Managing Underwriter's Warrants.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is party or by it may be bound or to
which any of its assets, properties, or business may be subject, have been duly
and validly authorized, executed and delivered by the Company and constitute the
legal, valid and binding agreements of the Company, and to the best knowledge of
the Company after due inquiry, the other parties thereto, enforceable against
the Company, and to the best knowledge of the Company after due inquiry, the
other parties thereto, in accordance with their respective terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts, agreements or
other documents that are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement that are not
described or filed as required, and the exhibits that have been filed are
complete and correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business consistent with past practice, or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock of
any class, and, since such respective dates, there has not been (i) any change
in the capital stock, in the debt (long or short term) or in the liabilities of
the Company or (ii) a Material Adverse Effect.
(o) No breach or default by or of the Company or, to the best knowledge of
the Company after due inquiry, any other party exists in the due performance and
observance of any term, covenant or condition of any material license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
7
<PAGE>
instrument to which the Company is a party or by which it may be bound or to
which the property or assets (tangible or intangible) of the Company is subject
or affected.
(p) Except as described in the Prospectus, the Company does not maintain,
sponsor or contribute to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as
such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). The Company does not maintain or contribute (and has not previously
maintained or contributed) to a "defined benefit plan," as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, that could subject the Company to any tax penalty on
prohibited transactions and that has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure, and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination or opinion letters have been received from the Internal Revenue
Service with respect to each ERISA Plan which is intended to comply with Code
Section 401(a), stating that the form of such ERISA Plan and the attendant trust
are qualified thereunder. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(q) The Company has not taken and shall not take, directly or indirectly,
any action designed to, or that might reasonably be expected to cause or result
in (under the Exchange Act or otherwise), stabilization or manipulation of the
price of any security of the Company, whether to facilitate the sale or resale
of the Securities or otherwise.
(r) To the best knowledge of the Company and except as disclosed in the
Prospectus, none of the patents, patent rights, trademarks, service marks, trade
names, copyrights, technology, and know-how, and none of the license or rights
to the foregoing, presently owned or held by the Company or used in or necessary
to the conduct of its business as now conducted or proposed to be conducted (all
of the foregoing, collectively, its "Intellectual Properties"), are in dispute
or are in any conflict with the right of any other person or entity. To the best
of knowledge of the Company after due inquiry, the Company (i) owns or has the
right to use all of its Intellectual Properties, free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever (collectively, "Liens") without
infringing upon or otherwise acting adversely to the right or claimed right of
any person or other entity under or with respect to any of the foregoing and
(ii) except as set forth in the Prospectus, is not obligated or under any
liability whatsoever to make any payment by way of royalties, fees, or otherwise
to any owner or licensee of, or other claimant to, any Intellectual Properties
with respect to the use thereof or in connection with the conduct of its
business or otherwise.
(s) To the Company's best knowledge and except as disclosed in the
Prospectus, the Company owns and has the unrestricted right to use all trade
secrets, know-how (including all unpatented and/or unpatentable proprietary or
confidential information, systems, and procedures), inventions, designs,
processes, works of authorship, computer programs, and technical data and
information that are material to the development, manufacture, operation and
sale of all products and services sold or otherwise described or referred to in
the Registration Statement and the Prospectus proposed to be sold by the
Company, free and clear of and without violating any right, Lien or claim of
others, including without limitation former employers of its employees;
8
<PAGE>
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company or its employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company. The Company is not aware of any such development of
similar or identical trade secrets or technical information by others.
(t) The Company has taken reasonable security measures to protect the
secrecy, confidentiality, and value of all of its Intellectual Properties in all
material respects.
(u) The Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated in the
Prospectus to be owned or leased by it free and clear of all Liens of any kind
whatsoever, other than (i) those referred to in the Prospectus and (ii) Liens
for taxes not yet due and payable.
(v) Richard Eisner & Co. LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(w) There are no agreements, claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's, consulting or origination fee with respect to the sale of the
Securities, the Redeemable Warrant Shares or the Representative's Securities or
any other agreements, claims, payments, issuances, arrangements or
understandings with respect to the Company or any of its officers, directors,
stockholders, partners, employees, or affiliates that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(x) Each of the Common Stock and the Redeemable Warrants has been approved
for quotation on the NASDAQ SmallCap Market.
(y) Neither the Company nor any of its officers, employees, or agents or
any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift, or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee, or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) that (a) might subject the
Company or any other such person to any damage or penalty in any civil,
criminal, or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, could have had a Material Adverse Effect on the Company,
or (c) if not continued in the future, could have a Material Adverse Effect on
the Company. The Company's internal accounting controls are sufficient to cause
the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(z) Except as set forth in the Prospectus, no officer, director or
principal stockholder of the Company, nor any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities, has or
9
<PAGE>
has had, either directly or indirectly, (i) an interest in any person or entity
that (A) furnishes or sells services or products that are furnished or sold or
are proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing or proposed agreements,
arrangements, understandings, or transactions between or among the Company and
any officer, director, or principal stockholder of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities.
(aa) Any certificate signed by any officer of the Company on behalf of the
Company and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(bb) The minute books of the Company have been made available to the
Representative and contains a complete summary of all meetings and actions of
the directors of the Company since the time of its incorporation, and reflects
accurately in all material respects all transactions referred to in such
minutes.
(cc) No holders of any securities of the Company or of any options,
warrants, or other convertible or exchangeable securities of the Company (i)
have the right to include any securities issued by the Company in the
Registration Statement or (ii) except and to the extent described in the
Prospectus, have the right to include any securities issued by the Company in
any registration statement to be filed by the Company or to require the Company
to file a registration statement under the Act; and, except and to the extent
described in the Prospectus, no person or entity holds any anti- dilution rights
with respect to any securities of the Company.
(dd) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Dr. Katherine
Gordon, Robert J. Leonard and John J. Curry in the forms filed as Exhibits
10.12, 10.14 and 10.13, respectively, to the Registration Statement, and (ii)
purchased term key-person insurance on the life of Dr. Katherine Gordon in the
amount of $1,000,000, which policy names the Company as the beneficiary thereof.
2. Representations and Warranties of the Managing Underwriter. The
Managing Underwriter represents and warrants, on behalf of itself and each of
the Underwriters, as follows:
(a) The Managing Underwriter has been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
(b) The Managing Underwriter, its counsel and/or certain agents of the
Managing Underwriter, have been provided with copies of all materials related to
the Company which they have requested and all such parties have had an adequate
opportunity to review all such materials.
(c) The information set forth in the last paragraph on the front cover
page, the first paragraph on the inside front cover, under the caption
"Underwriting" and in the Risk Factor under the caption entitled "Inexperience
of Managing Underwriter" in the Registration Statement any Preliminary
Prospectus, and the Prospectus relating to the Securities filed by the Company
10
<PAGE>
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
that the statements made therein are correct.
3. Purchase, Sale, and Delivery of the Securities and Managing
Underwriter's Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$__________ (90% of the public offering price) per Share and $0.25 per
Redeemable Warrant, those numbers of Shares and Redeemable Warrants set forth in
Schedule A opposite the name of such Underwriter, subject to such adjustment as
the Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares or warrants, plus any additional number of Firm
Securities that such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants, and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 180,000 shares of Common of Stock at a price of $_____ (90% of the
public offering price) per share, and/or up to an additional 180,000 Redeemable
Warrants at a price of $0.25 per Redeemable Warrant. The option granted hereby
will expire 45 days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments that may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the respective numbers and types of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representative and the
Company. Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and the delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
200 Garden City Plaza, Suite 518, Garden City, New York 11530, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
__________________, 1997 by wire transfer of same day federal funds or at such
other time and date as shall be agreed upon by the Representative and the
Company, but not less than three nor more than fifteen full business days after
the effective date of the Registration Statement (such time and date of payment
and delivery being herein called "Closing
11
<PAGE>
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company, by New York Clearing House funds. If such option is
exercised, each of the Underwriters, acting severally and not jointly, shall
purchase that proportion of the total number of Option Securities then being
purchased that the number of Firm Securities set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares or warrants. Certificates for the Firm Securities and the Option
Securities, if any, shall be in the definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and registered in
such names as the Underwriters may request in writing at least two (2) business
days prior to the Closing Date or the relevant Option Closing Date, as the case
may be. The certificates for the Firm Securities and the Option Securities, if
any, shall be made available to the Representative at such office or such other
place as the Representative may designate for inspection, checking and packaging
no later than 9:30 a.m. on the last business day prior to the Closing Date or
the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Managing Underwriter's Warrants at a purchase price of $.001
per Representative's Warrant, which warrants shall entitle the holders thereof
to purchase up to an aggregate of 120,000 shares of Common Stock. The Managing
Underwriter's Warrants shall be exercisable for a period of five (5) years
commencing on the effective date of the Registration Statement at an exercise
price per share purchased thereunder equal to one hundred thirty percent (130%)
of the initial public offering price of the Shares. The Representative's Warrant
Agreement and form of Warrant Certificate shall be substantially in the form
attached hereto as Exhibit A. Payment for the Managing Underwriter's Warrants
shall be made on the Closing Date.
4. Public Offering of the Shares and the Redeemable Warrants.
As soon after the Registration Statement becomes effective as the
Representative deems advisable, the Underwriters shall make a public offering of
the Shares and the Redeemable Warrants (other than to residents of or in any
jurisdiction in which qualification of the Shares and/or the Redeemable Warrants
is required and has not become effective) at the price and upon the other terms
set forth in the Prospectus. The Representative may from time to time increase
or decrease the public offering price of the Shares and/or the Redeemable
Warrant after distribution thereof has been completed to such extent as the
Representative, in its sole discretion, deems advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
12
<PAGE>
5. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and shall not at any time, whether before or after the effective
date of the Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any document under the Act or
the Exchange Act before termination of the offering of the Shares and the
Redeemable Warrants by the Underwriters of which the Representative shall not
previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company shall advise the Representative and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, or if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission or authority of any proceedings
for the suspension of the qualification of any of the Securities or the
Redeemable Warrant Shares for offering or sale in any jurisdiction or of the
initiation or threatening of any proceeding for that purpose, (iv) of the
receipt of any comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission or
any state securities commission or authority shall enter a stop order or suspend
such qualification at any time, the Company shall use its best efforts to obtain
promptly the lifting of such order or suspension.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement.
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus that the Company proposes for use by the
Underwriters in connection with the offering of the Securities that differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or its counsel ("Underwriters' Counsel") shall object.
13
<PAGE>
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities and the Redeemable Warrant Shares for
offering and sale under the securities laws of such jurisdictions as the
Representative may designate to permit the continuance of sales and dealings
therein for as long as may be necessary to complete the distribution, and shall
make such applications, file such documents and furnish such information as may
be required for such purpose; provided, however, the Company shall not be
required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company shall, unless the
Representative agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities and the Redeemable Warrant Shares in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Securities or the Redeemable
Warrant Shares is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company shall notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company shall furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days after
the end of the twelve-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement that will be in the detail required by, and otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve consecutive months after the effective date
of the Registration Statement.
(h) During a period of five years after the date hereof, the Company shall
deliver to the Representative:
14
<PAGE>
i) statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent certified
public accountants;
iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange; and
v) every material press release and every material news item or
article of interest to the financial community in respect of the Company
or its affairs that was released or prepared by or on behalf of the
Company; provided that the Company shall only be obligated to use best
efforts as to the information set forth in this subsection (iv).
During such five-year period, the foregoing financial statements shall
comply in all material respects with the requirements of the Exchange Act.
(i) The Company shall maintain a transfer agent, and if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock and a warrant agent for
the Redeemable Warrants.
(j) The Company shall furnish or cause to be furnished to the
Representative or on the Representative's order, without charge, at such place
as the Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (one of which copies shall be manually signed and shall include all
financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
(k) The Company has provided the Representative with true copies of duly
executed, legally binding and enforceable agreements (collectively, the "Lock-Up
Agreements") pursuant to which, for a period of thirteen (13) months after the
effective date of the Registration Statement, each of the Company's officers,
directors, stockholders of the Company (except as otherwise disclosed to the
Representative), and all holders of securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock has agreed that, without the prior written consent of the
Representative, such person or entity (each, a "Restricted Party") shall not
directly or indirectly offer to sell, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant
15
<PAGE>
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein in accordance with the Rules and Regulations (all of
the foregoing being referred to collectively as "Restricted Securities"). On or
before the Closing Date, the Company shall deliver instructions to the transfer
agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) The Company shall not take, or permit any of its officers, directors,
or stockholders or any of their respective affiliates (within the meaning of the
Rules and Regulations) to take, directly or indirectly, any action designed to,
or that might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms and other
documents as may be required (including without limitation a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed shall comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) Unless otherwise agreed by the Company and the Representative, the
Company shall cause the Common Stock and the Redeemable Warrants to be quoted on
the NASDAQ SmallCap Market, and for a period of seven years from the date
hereof, shall use its best efforts to maintain the NASDAQ SmallCap Market
quotation of the Common Stock and the Redeemable Warrants.
(p) For a period of three years from the Closing Date, the Company shall
furnish to the Representative, as and to the extent reasonably requested by the
Representative, at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Company's securities, (ii) the list of holders of all of
the Company's securities, and (iii) a Blue Sky "Trading Survey" for secondary
sales of the Company's securities prepared by counsel to the Company.
(q) The Company has filed a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Common Stock and the Redeemable
Warrants, respectively, and has requested that such filing be declared effective
at the same time as the Registration Statement becomes effective, and as soon as
practicable hereafter but in no event more than 30 days from the effective date
of the Registration Statement, shall, take all necessary and appropriate actions
for the Common Stock and the Redeemable Warrants to be included in Standard and
Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven years, in the case of the Common
Stock, and until no Redeemable Warrants are outstanding, in the case of the
Redeemable Warrants.
16
<PAGE>
(r) Until that date which is 25 days after the effective date of the
Registration Statement the Company shall not, without the prior written consent
of the Representative and Underwriters' Counsel, issue, directly or indirectly,
any press release or other communication or hold any press conference with
respect to the Company or its activities or the offering contemplated hereby,
other than trade releases issued in the ordinary course of the Company's
business consistent with past practices with respect to the Company's operations
or such releases as counsel has advised the Company are necessary to comply with
applicable law.
(s) Until after the earlier of (i) six years from the date hereof, and
(ii) the sale to the public of all of the Representative's Securities, the
Company shall maintain the effectiveness of the Registration Statement on Form
SB-2 (or other appropriate form, including, without limitation, Form S-3)
covering the Representative's Securities.
(t) For a period of three years after the effective date of the
Registration Statement, (i) the Company shall notify the Representative of each
meeting of the Board of Directors of the Company (the "Board") and each meeting
of the Executive Committee of the Board, and (ii) one individual selected by the
Representative (who may be a director, officer, agent or affiliate of the
Representative) shall be permitted to attend all meetings of the Board and the
Executive Committee and to receive all notices and other correspondence and
communications sent by the Company to the members of the Board and the Executive
Committee. Such individual shall be reimbursed for all reasonable out-of-pocket
expenses incurred in connection with such person's attendance at meetings of the
Board and Executive Committee.
(u) Commencing on the date hereof, the Company shall pay to First United a
commission equal to five (5) percent (5%) of the exercise price of the
Redeemable Warrants, payable on the date of the exercise of any or all thereof
on terms provided for in the Warrant Agreement; provided, however, it is hereby
agreed that no such commission will be paid in connection with the exercise of
any of the Managing Underwriter's Warrants. The Company will not solicit the
exercise of the Redeemable Warrants through any third party other than First
United; and the Company hereby irrevocably appoints First United as its
exclusive third-party agent for the solicitation of exercise of the Redeemable
Warrants, such agency being coupled with an interest on the part of First
United.
(v) The Company hereby agrees that, for a period of five years from the
date of this Agreement: (i) prior to entering into any agreements with
respect to the public offering or private placement of equity securities or
securities convertible into equity securities of the Company it will approach
the Representative to determine their level of interest, and (ii) to use
diligent efforts consistent with good business practices to induce any other
underwriter to include the Representative in the underwriting syndicate, with
respect to any public offerings by the Company.
6. Payment of Expenses.
(a) The Company hereby agrees to pay, on each of the Closing Date and each
Option Closing Date (to the extent not paid at the Closing Date), all expenses
and fees (other than fees and expenses of Underwriters' Counsel, except as
provided in clause (iv) below) incident to the performance of the obligations of
the Company under this Agreement, the Warrant Agreement, and the
Representative's Warrant Agreement, including without limitation (i) the fees
and expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing
(including mailing and handling charges), filing, delivery, and mailing
(including the payment of postage with respect thereto) of the Registration
Statement and the Prospectus and any amendments and supplements thereto and the
copying, mailing (including the payment of postage with respect thereto), and
delivery of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreements, and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of
17
<PAGE>
the Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities, including, but not limited to (x) the purchase by the Underwriters
of the Securities and the purchase by the Representative of the Managing
Underwriter's Warrants from the Company, and (y) the consummation by the Company
of any of its obligations under this Agreement and the Representative's Warrant
Agreement, and (z) resale of the Securities by the Underwriters in connection
with the distribution contemplated hereby, (iv) the qualification of the
Securities, the Redeemable Warrant Shares and the Representative's Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum," and the "Legal Investment Survey," if any, and
disbursements and reasonable fees of counsel in connection therewith, (v)
advertising costs and expenses, and costs and expense in connection with bound
volumes and prospectus memorabilia and "tomb-stone" advertisement expenses, (vi)
costs and expenses in connection with Company counsel's due diligence
investigations, including without limitation the fees of any independent counsel
or consultant retained, (vii) fees and expenses of the Warrant Agent and of the
transfer agent and registrar for the Common Stock, (viii) the fees payable to
the Commission and the NASD, and (ix) the fees and expenses incurred in
connection with the listing or quotation, as the case may be, of the Securities
on the NASDAQ SmallCap Market and any other exchange or market system.
(b) The Company further agrees that, in addition to the expenses payable
pursuant to Section 6(a), it shall pay to the Representative on the Closing Date
by certified or bank cashier's check or, at the election of the Representative,
by deduction from the proceeds of the offering contemplated herein a
non-accountable expense allowance equal to three percent of the gross proceeds
received by the Company from the sale of the Firm Securities less any amounts
paid by the Company to the Representative for out-of-pocket and due diligence
expenses, and legal fees and expenses of counsel to the Representative, $____ of
which has been paid to date. If the Representative elects to exercise the
over-allotment option described in Section 3(b) hereof, the Company agrees to
pay to the Representative on each Option Closing Date (by certified or bank
cashier's check or, at the Representative's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three
percent of the gross proceeds from the sale of the Option Securities sold on
such Option Closing Date.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof and the performance by the Company on and as of the Closing Date and each
Option Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not later than
12:00 A.M., New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Representative, and at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued
18
<PAGE>
and no proceedings for that purpose shall have been instituted or shall be
pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the prices of the Securities
and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representative of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact that, in the Representative's opinion, is material, or omits to state a
fact that, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact that, in the Representative's opinion, is material, or omits to state a
fact that, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date or Option Closing Date, as the case
may be, the Representative shall have received from Underwriters' Counsel, such
opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Managing Underwriter's Warrants, the
Registration Statement, the Prospectus, and other related matters as the
Representative may request and Underwriters' Counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have received the
favorable opinion of Palmer & Dodge LLP, counsel to the Company ("Company
Counsel"), dated the Closing Date, addressed to the Underwriters, and in form
and substance satisfactory to Underwriters, covering the matters set forth on
Annex A attached hereto.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of Bromberg & Sunstein, patent counsel to the Company, dated
the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, covering the matters set forth on Annex B
attached hereto.
(f) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of Company Counsel, and Bromberg & Sunstein,
patent counsel to the Company, respectively, each dated the Option Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, confirming as of each Option Closing Date the statements
made by such counsel in its opinion delivered on the Closing Date.
(g) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters
19
<PAGE>
referred to in Section 7(c), or in order to evidence the accuracy, completeness,
or satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(h) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no Material Adverse Effect on the Company, (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company from the latest date as of which the financial
condition of the Company is set forth in the Registration Statement and
Prospectus that is materially adverse to the Company; (iii) the Company shall
not be in material breach or material default under any provision of any
instrument relating to any outstanding indebtedness; (iv) the Company shall not
have issued any securities (other than as described in the Registration
Statement and other than the Securities and the Representative's Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital stock
or any material change in the debt (long or short term) or liabilities or
obligations of the Company (contingent or otherwise); (v) no material amount of
the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or involving or
affecting its business or properties, before or by any court or federal, state
or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding could have a Material Adverse Effect on
the Company, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(i) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company, signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus, and this Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date or such Option Closing Date, as the case may be,
and the Company has complied, in all material respects, with
all agreements and covenants and satisfied, in all material
respects, all conditions contained in this Agreement on its
part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of each of such person's knowledge
after due inquiry, are contemplated or threatened under the
Act;
iii) the Registration Statement and the Prospectus and each
amendment and each supplement thereto, if any, contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus, or any
amendment or supplement thereto includes any untrue
20
<PAGE>
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; except that such certification
may expressly exclude statements or omissions made in reliance
upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf
of the Underwriters expressly for use in such Preliminary
Prospectus, Registration Statement or Prospectus; and
iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a)
the Company shall not have incurred, up to and including the
Closing Date or the Option Closing Date, as the case may be,
other than in the ordinary course of its business consistent
with past practice, any material liabilities or obligations,
direct or contingent; (b) the Company shall not have paid or
declared any dividends or other distributions on its capital
stock; (c) the Company shall not have entered into any
transactions not in the ordinary course of business consistent
with past practice; (d) there shall not have been any change
in the capital stock or long-term debt or any increase in the
short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of business
consistent with past practice) of the Company; (e) the Company
shall not have sustained any material loss or material damage
to its property or assets, whether or not insured; (f) there
shall be no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliated party that is required to be set forth in an
amended or supplemented Prospectus and that has not been so
set forth; and (g) there shall not have occurred any event
required to be set forth in an amended or supplemented
Prospectus that shall not have been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters shall have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated the date hereof, addressed to the Underwriters in form
and substance satisfactory (including as to the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from Richard Eisner & Co. LLP
covering the matters set forth on Annex C attached hereto.
21
<PAGE>
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Richard Eisner & Co. LLP a letter, dated
as of the Closing Date or such Option Closing Date, as the case may be, to the
effect that they reaffirm that the statements made in the letter furnished
pursuant to subsection (k) of this Section, except that the specified date
referred to therein as of which the examination made by them as described
therein shall have been made shall be a date not more that five days prior to
Closing Date or such Option Closing Date, as the case may be, and if the Company
has elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (v) of
subsection (k) of this Section with respect to certain amounts, percentages and
financial information as specified by the Representative and deemed to be a part
of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(m) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for its account and
the several Underwriters' accounts, certificates representing the appropriate
numbers and types of Representative's Securities and Securities, as the case may
be, against payment therefor as provided herein.
(n) No order suspending the sale of the Securities, the Redeemable Warrant
Shares or the Representative's Securities in any jurisdiction designated by the
Representative pursuant to subsection (e) of Section 5 hereof shall have been
issued on either the Closing Date or the Option Closing Date, if any, and no
proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the Closing Date, the Company shall have executed and
delivered the Warrant Agreement to the Warrant Agent, with a fully executed
original copy to the Representative, and shall have executed and delivered to
the Representative, (i) the Representative's Warrant Agreement, in the form
attached hereto as Exhibit A, and (ii) the Managing Underwriter's Warrants, in
such denominations and to such designees (who must be officers of the
Representative) as shall have been requested by the Representative.
(p) On or before Closing Date, the Common Stock and the Redeemable
Warrants each shall have been duly approved for quotation on the NASDAQ SmallCap
Market, subject to official notice of issuance.
(q) On or before Closing Date, there shall have been delivered to the
Representative all of the Lock-Up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
If any representation or warranty of the Company herein shall not be true
and correct, or if any other material condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant Option
Closing Date, as the case may be, is not so fulfilled, the Representative may
terminate this Agreement or, if the Representative so elects, it may waive any
such conditions that have not been fulfilled or extend the time for their
fulfillment.
22
<PAGE>
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 8 "Underwriter" shall include the
officers, directors, stockholders, partners, employees, agents, and counsel of
each Underwriter, including specifically each person who may be substituted for
an Underwriter as provided in Section 12 hereof), and each person, if any, who
controls such Underwriter (each, a "controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses, or liabilities, joint or several (and
actions, proceedings, investigations and inquiries in respect thereof),
whatsoever (including but not limited to any and all expenses whatsoever
incurred in investigating, preparing or defending against any litigation
commenced or threatened, or any claim whatsoever) (collectively, "Losses"), as
such are incurred, to which the Underwriter or such controlling person may
become subject under the Act, the Exchange Act, or any other statute or at
common law or otherwise or under the laws of foreign countries, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in any Preliminary Prospectus, the Registration Statement, or
the Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement or
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, or the NASDAQ SmallCap Market, or any other securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made
exclusively in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement, or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be; provided, however, that the indemnity
agreement contained in this paragraph with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such Losses purchased the Securities which are the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Securities a copy of the Prospectus (or
the Prospectus as amended or supplemented) was not sent or delivered to such
person and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented).
The indemnity agreement in this subsection (a) shall be in addition to any
liability that the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement (whether on his or her own
behalf or pursuant to a power of attorney), and each other person, if any, who
controls the Company within the meaning of the Act and the Exchange Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters, but
only
23
<PAGE>
with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement, or Prospectus or any amendment thereof
or supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement, or Prospectus or any amendment thereof
or supplement thereto or in any such application. The Company acknowledges that
the statements with respect to the public offering of the Securities set forth
in the last paragraph on the front cover page, the first paragraph on the inside
front cover and under the caption "Underwriting" and in the Risk Factor under
the caption entitled "Inexperience of Managing Underwriter" in the Registration
Statement, any Preliminary Prospectus and the Prospectus relating to the
Securities filed by the Company (insofar as such information relates to the
Underwriters) constitutes the only information furnished by the Underwriters to
the Company for inclusion in the Registration Statement, any Preliminary
Prospectus, and the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition to any
liability that the several Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, suit or proceeding, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section, except to the extent that it has
been prejudiced in any material respect by such failure or from any liability
that it may have otherwise). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable period of time after notice of commencement of the
action, (iii) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them that are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties) or (iv)
counsel to the indemnifying parties shall have concluded that a conflict exists
between the indemnified party or parties and the indemnifying parties, in any of
which events such fees and expenses of additional counsel shall be borne by the
indemnifying parties. Anything in this Section to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent unless such consent was unreasonably
withheld or delayed.
24
<PAGE>
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes a claim for indemnification pursuant to
this Section, but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of this Section provide for indemnification in such case, or (ii)
contribution under the Act may be required on the part of any indemnified party,
then each indemnifying party shall contribute to the amount paid as a result of
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) (A) in such proportion as is appropriate to reflect the relative
benefits received by each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand, from the offering of the Securities,
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such Losses, as well as any other relevant equitable
considerations. In any case where the Company is a contributing party and the
Underwriters are the indemnified parties, the relative benefits received by the
Company on the one hand, and the Underwriters, on the other, shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriters hereunder, in each case as set forth in the table
on the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the Losses (or actions in respect
thereof) referred to above in this subdivision (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities that any indemnifying
party may have at common law or otherwise.
25
<PAGE>
9. Representations and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement
or contained in certificates of officers of the Company submitted pursuant
hereto, shall be deemed to be representations, warranties and agreements at the
Closing Date and the applicable Option Closing Date, as the case may be, and
such representations, warranties and agreements of the Company and the
respective indemnity agreements contained in Section 8 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company, or any controlling person of any
Underwriter or the Company, and shall survive termination of this Agreement and
the issuance and delivery of the Securities to the Underwriters and the
Representative's Securities to the Representative, as the case may be.
10. Effective Date.
This Agreement shall become effective at 10:00 a.m., New York City time,
on the next full business day following the date hereof, or at such earlier time
after the Registration Statement becomes effective as the Representative, in its
discretion, shall release the Securities for the sale to the public; provided,
however, that the provisions of Sections 6, 8 and 11 of this Agreement shall at
all times be effective. For purposes of this Section, the Securities to be
purchased hereunder shall be deemed to have been so released upon the earlier of
dispatch by the Representative of telegrams to securities dealers releasing such
Securities for offering or the release by the Representative for publication of
the first newspaper advertisement that is subsequently published relating to the
Securities.
11. Termination.
(a) Subject to subsection (b) of this Section, the Representative shall
have the right to terminate this Agreement by providing written notice thereof
to the Company at any time prior to the delivery of any payment for the
Securities if prior to such time any of the following occurs: (i) any domestic
or international event or act or occurrence has disrupted, or in the
Representative's opinion will in the immediate future disrupt, the financial
markets; or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) trading on the New York Stock Exchange, the American Stock
Exchange or in the over-the-counter market shall have been suspended, or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other governmental or regulatory
authority having jurisdiction; or (iv) the United States shall have become
involved in a war or major hostilities, or there shall have been an escalation
in an existing war or major hostilities or a national emergency shall have been
declared in the United States; or (v) a banking moratorium shall have been
declared by a state or federal governmental or regulatory authority; or (vi) a
moratorium in foreign exchange trading shall have been declared; or (vii) the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (viii) there shall have been a Material Adverse
Effect, or such material adverse change in the general market, political or
economic conditions, in the United States or
26
<PAGE>
elsewhere, as in the Representative's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities; or (ix) if
Dr. Katherine Gordon no longer serves the Company in her present capacity.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 11(a), neither party shall have any further
obligation to the other party except that (i) the Company shall be responsible
for any unpaid exercises under Section 6(a) up through the date of such
termination and (ii) both parties shall continue to have the obligations set
forth in Section 8 of this Agreement. Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out within
the time specified herein, or any extension thereof granted to the
Representative, by reason of any failure on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement by it to be performed
or satisfied (including, without limitation, pursuant to Section 7 or Section 13
hereof) then the Company shall promptly reimburse and indemnify the
Representative for the expenses payable under Section 6(a), including Blue Sky
filing fees. Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement and whether or not
this Agreement is otherwise carried out, the provisions of Section 6 and Section
8 shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
12. Substitution of the Underwriters.
If one or more of the Underwriters shall fail (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 7, Section 11 or Section 13 hereof) to purchase the Securities which it
or they are obligated to purchase on such date under this Agreement (the
"Defaulted Securities"), the Representative shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:
(a) If the anticipated net proceeds to the Company from the
Defaulted Securities does not exceed 10% of the total anticipated net
proceeds to the Company from the Firm Securities to be purchased on such
date, the non-defaulting Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the anticipated net proceeds to the Company from the
Defaulted Securities exceeds 10% of the total anticipated net proceeds to
the Company from the Firm Securities to be purchased on such date, this
Agreement shall terminate without liability on the part of any
non-defaulting Underwriters or the Company.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
27
<PAGE>
In the event of any such default that does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
13. Default by the Company.
If the Company shall fail at the Closing Date or any Option Closing Date,
as applicable, to sell and deliver the respective numbers and types of
Securities that it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Sections 6, 8 and 11 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
14. Notices.
All notices and communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given if mailed by certified or registered mail, return receipt requested, sent
via an established, reputable overnight courier service, or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Representative at 200 Garden City Plaza, Suite 518, Garden City,
New York 11530, Attn: ____________ with a copy to Rubin Baum Levin Constant
Friedman & Bilzin, 200 South Biscayne Boulevard, Suite 2500, Miami, Florida
33131-2336, Attn: Harold E. Berritt, Esq. Notices to the Company shall be
directed to Apollo BioPharmaceutics, Inc., One Kendall Square, Building 200,
Suite 2200, Cambridge, Massachusetts 02139, Attn: Dr. Katherine Gordon with a
copy to Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts 02108,
Attn: Michael Lytton, Esq.
15. Parties.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, the Company and the controlling persons, directors and
officers referred to in Section 7 hereof, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provisions herein contained. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
16. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to its
choice of law or conflict of laws principles.
28
<PAGE>
17. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which taken together shall
be deemed to be one and the same instrument.
18. Entire Agreement; Amendments.
This Agreement and the Representative's Warrant Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof, including without limitation a letter of intent dated May 28, 1996. This
Agreement may not be amended except in a writing signed by the Representative
and the Company.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement. The parties agree, however, that in the event any
provision of this Agreement shall be declared invalid or unenforceable, the
parties shall negotiate a new provision achieving to the extent possible the
purpose of the invalid provision.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and each of the several Underwriters.
Very truly yours,
APOLLO BIOPHARMACEUTICS, INC.
By___________________________________
Katherine Gordon, Ph.D.
President and CEO
Confirmed and accepted as of the date first
above written:
29
<PAGE>
FIRST UNITED EQUITIES CORPORATION
For itself and as Representative
of the several Underwriters listed
in the attached Schedule A
By___________________________________
Name:
Title:
30
<PAGE>
SCHEDULE A
Number of Firm
Securities to
Name of Underwriter Be Purchased
- ------------------- ------------
Number
of
Number Redeemable
of Shares Warrants
--------- --------
First United Equities Corporation
--------- ---------
TOTAL 1,200,000 1,200,000
========= =========
31
<PAGE>
ANNEX A
Matters to be Covered in the Opinion of
Palmer & Dodge LLP, Counsel for the Company
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is duly
qualified to do business and is in good standing as a foreign corporation in the
commonwealth of Massachusetts, which, to our knowledge, is the only jurisdiction
in which its ownership or leasing of any properties or the character of its
operations requires such qualification. The Company has all corporate power and
authority necessary to own or hold its properties and conduct the business in
which it is presently engaged as described in the Prospectus. To our knowledge,
the Company does not own an interest in any corporation, partnership, joint
venture, trust or other business entity.
2. The Company's authorized capitalization consists of 20,000,000 shares
of Common Stock, $.02 par value per share, and 1,000,000 shares of Preferred
Stock, $0.01 par value per share. All of the issued and outstanding shares of
capital stock of the Company have been duly and validly authorized and issued
and are fully paid and non-accessible with no personal liability attaching to
the ownership thereof. The Shares being delivered on the date hereof upon
issuance and delivery and payment therefor in the manner described in the
Underwriting Agreement are, and the Redeemable Warrant Shares and the
Representative's Warrant Shares, when issued upon exercise in accordance with
the terms of the Warrant Agreement and the Representative's Warrant Agreement
will be, duly and validly authorized and issued, fully paid and non-accessible
with no personal liability attaching to the ownership thereof. The statements
made in the Prospectus under the caption "Description of Securities" insofar as
they purport to constitute summaries of the terms for the Company's capital
stock and securities convertible or exercisable for such capital stock
(including the Securities), constitute accurate summaries of the terms of such
capital stock in all material respects and fairly present in all material
respects the terms of such securities.
3. Upon the consummation of the initial public offering, there will be no
preemptive or other rights to subscribe for or to purchase or rights of first
refusal or participation with respect to any shares of Common Stock pursuant to
the Company's charter or by-laws or any agreement or other instrument known to
us. Except as described in the Prospectus and as provided in the Company charter
and by-laws, there are no restrictions upon the voting or transfer of any shares
of Common Stock pursuant to any agreement or other instrument known to us.
4. To our knowledge, but without inquiry into the dockets of any court,
commission, regulatory body, administrative agency or other governmental body,
and except as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or to which any property or
assets of the Company is subject which, if determined adversely to the Company
are reasonably likely to have a Material Adverse Effect on the business or
prospects of the Company taken as a whole.
5. The Registration Statement has been declared effective under the
Securities Act and, to our knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that purpose
is pending or threatened by the Commission.
1
<PAGE>
6. The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to the date hereof
(other than the financial statements, financial and statistical information, pro
forma financial information and related schedules and notes thereto, as to which
we express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.
7. To our knowledge, there are no contracts or other documents that are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
that have not been described or filed as exhibits to the Registration Statement.
8. The Company has full right, power, and authority to execute and deliver
the Underwriting Agreement, the Warrant Agreement, the Redeemable Warrants, the
Representative's Warrant Agreement and the Managing Underwriter's Warrants and
to consummate the transactions contemplated thereby.
9. Each of the Underwriting Agreement, the Warrant Agreement, the
Redeemable Warrants, the Managing Underwriter's Warrants Agreement and the
Managing Underwriter's Warrants has been duly authorized, executed, and
delivered by the Company. Each of the Underwriting Agreement, the Warrant
Agreement, the Redeemable Warrants, the Representative's Warrant Agreement and
the Representative's Warrant constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
10. The issuance and sale of the Securities being delivered on the date
hereof by the Company, the compliance by the Company with all of the provisions
of the Underwriting Agreement, the Warrant Agreement, the Redeemable Warrants,
the Representative's Warrant Agreement and the Representative's Warrant and the
consummation of the transactions contemplated thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default, an event of default, or an event which, with notice or
lapse of time or both, would constitute a default or event of default under, any
indenture, mortgage, deed of trust, loan agreement, or other agreement or
instrument filed as an exhibit to the Registration Statement, nor will such
actions result in any violation of the provisions of the charter or by-laws of
the Company or any material statute, order, rule or regulation or, to our
knowledge, any judgment, order or decree of any court or governmental agency or
body having jurisdiction over the Company or any of its properties or assets,
except for such conflicts, breaches, violations and defaults as are not
reasonably likely, individually or in the aggregate, to have (a) a Material
Adverse Effect on the business or prospects of the Company; or (b) any adverse
effect on the consummation of the transactions contemplated by the Underwriting
Agreement, the Warrant Agreement, the Redeemable Warrants, the Representative's
Warrant Agreement and the Representative's Warrants. Except for the registration
of the Securities under the Securities Act, and such consents, approvals,
authorizations, registrations, or qualifications as may be required under the
Exchange Act and applicable state or foreign securities laws in connection with
the purchase and distribution of the Securities by the underwriters thereof, no
consent, approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the issuance and
sale of the Securities being delivered on the date hereof by the Company, the
compliance by the Company with all of the provisions of the Underwriting
Agreement, the Warrant Agreement, the Redeemable Warrants,
2
<PAGE>
the Representative's Warrant Agreement and the Representative's Warrants or the
consummation of the transactions contemplated thereby.
11. To our knowledge, except as described under the caption "Shares
Eligible for Future Sale - Registration Rights" in the Preliminary Prospectus
and except for registration rights applicable to the Representative's Warrants
there are no contracts, agreements or understandings in effect on the date
hereof between the Company and any person owning securities of the Company
granting such person the right to require the Company to include such securities
in the Registration Statement or in any other registration statement filed by
the Company under the Securities Act.
12. The Common Stock, the Redeemable Warrants and the Redeemable Warrant
Shares issued and sold by the Company have been accepted for listing by The
Nasdaq Small Cap Market upon official notice of issuance of the shares by the
Company to The Nasdaq Small Cap Market.
In connection with the preparation of the Registration Statement and the
Prospectus, we have participated in conferences with officers and
representatives of the Company and the independent accountants of the Company,
at which conferences we have made inquiries of such persons and others and
discussed the contents of the Registration Statement and the Prospectus. While
the limitations inherent in the independent verification of factual matters and
the character of determinations involved in the registration process are such
that we are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except as specifically stated
elsewhere in this opinion), nothing has come to our attention that has caused us
to believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading (except that we express no view or opinion with respect
to the financial statements and schedules or other financial and statistical
data included in the Registration Statement), and nothing has come to our
attention that has caused us to believe that the Prospectus, as of its date and
as of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that we express no view or opinion with respect to the
financial statements and schedules or other financial and statistical data
included in the Prospectus).
3
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of Bromberg & Sunstein
i) such counsel represents the Company in certain matters
relating to intellectual property, including patents and
proprietary rights;
ii) such counsel is familiar with the technology and processes
used by the Company in its business and the manner of its use
and has read the portions of the Registration Statement and
the Prospectus entitled "Risk Factors-- Technological
Uncertainty; Early State of Product Development; No Assurance
of Regulatory Approvals," "Risk Factors--Development of New
Technologies and Products," "Risk Factors--No Assurance of
United States or Foreign Regulatory Approval; Government
Regulation," "Risk Factors-- Uncertain Ability to Protect
Proprietary Technology," "Business-- Products in Development"
and "Business--Intellectual Property Rights" (the
"Intellectual Property Portion");
iii) to the extent that the Intellectual Property Portion contains
descriptions of the Company's patent applications and patent
applications licensed to the Company (collectively the
"Applications") and patents issued to or otherwise owned or
licensed by it (collectively the "Patents"), such descriptions
are accurate and do not omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading;
iv) such counsel has reviewed the Patents and Applications which
Patents and Applications are described in the Intellectual
Property Portion, and based upon such review, a review of the
prior art references made known to counsel and discussions
with Company personnel, such counsel is aware of no valid
United States or foreign issued patent that is or would be
infringed by the activities of the Company in the manufacture,
use or sale of any product or proposed product or other
material as described in the Prospectus and made or used
according to the Patents or the Applications;
v) The Applications have been properly prepared and filed on
behalf of the Company or its strategic partners, as the case
may be, and are being diligently pursued by the Company or its
strategic partners, as the case may be; each of the
Applications is assigned or licensed to the Company or its
strategic partners, as the case may be; to such counsel's
knowledge, no other entity or individual has any right in or
to any of the inventions claimed in any of the Applications or
patents sought to be issued therefrom; and each of the
Applications discloses patentable subject matter; and
4
<PAGE>
vi) such counsel is aware of no pending or threatened judicial,
administrative or other proceedings by governmental
authorities or others relating to the Patents or Applications
challenging the validity or scope of the Patents or
Applications (other than customary prosecution proceedings
relating to the Applications).
Such counsel shall also state that it has no reason to believe that the
information contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the information contained in the Intellectual Property Portion of the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and public officials, provided that copies
of any such statements or certificates shall be delivered to Underwriters'
Counsel.
References to the Registration Statement and the Prospectus in this Annex
shall include any amendment or supplement thereto at the date of such opinion.
5
<PAGE>
ANNEX C
Matters to be Covered in the Comfort Letter
of Richard A. Eisner & Co.
i) confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
ii) stating that it is their opinion that the financial statements and
supporting schedules of the Company included in the Registration
Statement comply as to form, in all material respects, with the
applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Richard Eisner & Co. LLP with respect to the financial
statements and supporting schedules included in the Registration
Statement;
iii) stating that, on the basis of a limited review that included a
reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date
of the latest available unaudited interim financial statements), a
reading of the latest available minutes of the stockholders and
board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has
come to their attention that would lead them to believe that (A) the
pro forma financial information contained in the Registration
Statement and Prospectus does not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Rules and Regulations or is not fairly presented in conformity
with generally accepted accounting principles applied on a basis
consistent with that of the audited financial statements of the
Company or the unaudited pro forma financial information included in
the Registration Statement, (B) the unaudited financial statements
and supporting schedules of the Company included in the Registration
Statement do not comply as to form, in all material respects, with
the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements of the
Company included in the Registration Statement, or (C) at a
specified date not more than five days prior to the effective date
of the Registration Statement, there has been any change in the
capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the
Company as compared with amounts shown in the balance sheet included
in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease, and (D) during the period from ________ to a specified
date not more than five days prior to the effective date of the
Registration Statement, there was any increase or decrease in net
revenues, net earnings or increase in net earnings per common share
of the
6
<PAGE>
Company, in each case as compared with the corresponding period
beginning __________other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease or
increase, setting forth the amount of such decrease or increase;
iv) stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company
and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards), set forth in the letter and
found them to be in agreement;
v) stating that they have not during the immediately preceding five
year period (or such shorter period as the Company shall have been
in existence) brought to the attention of any of the Company's
management any "material weakness," as defined in Statement of
Auditing Standard No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the
Company's internal controls;
vi) stating that they have in addition carried out certain specified
procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration
Statement and the Prospectus and that nothing has come to their
attention as a result of such procedures that caused them to believe
such unaudited pro forma financial information does not comply in
form in all respects with the applicable accounting requirements of
Item 301 Regulation S-B or that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation
of that information; and
vii) statements as to such other matters incident to the transaction
contemplated hereby as the Representative may request.
7
<PAGE>
EXECUTION COPY
ROYALTY PURCHASE AGREEMENT
BETWEEN
NEUROSCIENCE PARTNERS
LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER,
MDS ASSOCIES-NEUROSCIENCE INC.
- AND -
APOLLO GENETICS, INC.
DECEMBER 18, 1996
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE 1 DEFINITIONS AND SCHEDULES....................................1
1.1 Definitions..................................................1
1.2 Schedules....................................................9
ARTICLE 2 PURCHASED RIGHTS.............................................9
2.1 Sale of Purchased Rights to the Fund.........................9
2.2 Payment of Royalties.........................................9
2.3 Maximum Royalties............................................9
2.4 Cash Payment Buyout..........................................10
2.5 Liabilities Not Assumed......................................11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES...............................11
3.1 Representations and Warranties of Apollo.....................11
3.1.1 Corporate Matters..................................11
3.1.2 The Financial Statements...........................12
3.1.3 Undisclosed Liabilities............................12
3.1.4 Absence of Changes.................................12
3.1.5 Material Contracts.................................13
3.1.6 Absence of Conflicting Agreements..................14
3.1.7 Consents, Approvals, Etc...........................14
3.1.8 Compliance with Applicable Law.....................15
3.1.9 Litigation.........................................15
3.1.10 Purchased Rights...................................15
3.1.11 No Options.........................................15
3.1.12 Product Rights.....................................15
3.1.13 Non-Arm's Length Transactions......................17
3.1.14 Tax Returns........................................17
3.1.15 Authorized and Issued Share Capital................17
3.1.16 Disclosure.........................................18
3.2 Representations and Warranties of the Fund...................18
3.2.1 Corporate Matters..................................19
3.2.2 Absence of Conflicting Agreements..................19
3.2.3 Consents, Approvals, Etc...........................20
3.2.4 Investment.........................................20
3.2.5 Agreement For Sale.................................20
3.2.6 Investment Experience..............................20
3.2.7 Restricted Securities..............................20
3.2.8 Further Limitations on Disposition.................21
3.2.9 Legends............................................21
3.2.10 Laws of Funds Jurisdiction.........................22
3.3 Commission...................................................22
3.4 Non-Waiver...................................................22
<PAGE>
ii
3.5 Survival of Representations and Warranties...................22
ARTICLE 4 COVENANTS....................................................22
4.1 Covenants....................................................22
4.2 Non-Waiver and Audit.........................................28
ARTICLE 5 CONVERSION RIGHT.............................................29
5.1 Conversion Right.............................................29
5.2 Terms and Conditions Governing the Conversion Right..........29
5.3 Pro rata Reduction of Royalties..............................29
5.4 Paramountcy..................................................30
ARTICLE 6 DEFAULT......................................................30
6.1 Events of Default............................................30
6.2 Remedies.....................................................31
ARTICLE 7 INDEMNIFICATION..............................................32
7.1 Mutual Indemnifications for Breaches of Warranty, etc........32
7.2 Third Party Claims...........................................32
ARTICLE 8 CONFIDENTIALITY..............................................33
8.1 Confidential Information.....................................33
8.2 Non-Disclosure...............................................33
ARTICLE 9 DELIVERIES.ON.EXECUTION......................................34
9.1 Deliveries upon Execution of this Agreement..................34
ARTICLE 10 GENERAL......................................................35
10.1 Headings.....................................................35
10.2 Number and Gender............................................35
10.3 Entire Agreement.............................................35
10.4 Amendment....................................................35
10.5 Waiver of Rights.............................................35
10.6 Applicable Law...............................................36
10.7 Currency.....................................................36
10.8 Tender ......................................................36
10.9 Performance on Holidays......................................36
10.10 Financial Reporting Standards................................36
10.11 Expenses.....................................................36
10.12 Time.........................................................37
10.13 Notices......................................................37
10.14 Assignment...................................................38
10.15 Further Assurances...........................................39
10.16 Independent Parties..........................................39
10.17 Public Announcements.........................................39
<PAGE>
iii
10.18 Severability.................................................39
10.19 Counterparts.................................................40
10.20 Facsimile Execution..........................................40
SCHEDULE A FORM OF WARRANTS
SCHEDULE B PATENT RIGHTS
SCHEDULE C INSTRUMENTS, CONTRACTS, LEASES, LICENCES, RIGHTS OR OTHER
AGREEMENTS RELATING TO THE TECHNOLOGY, THE PRODUCT RIGHTS,
THE PRODUCTS OR THE PURCHASED RIGHTS
SCHEDULE D TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
SCHEDULE E FORM OF SUBSCRIPTION AGREEMENT
SCHEDULE F FORM OF REGISTRATION RIGHTS AGREEMENT
SCHEDULE G FINANCIAL STATEMENTS
SCHEDULE H GRANTS AND OPTIONS
<PAGE>
THIS AGREEMENT IS MADE AS OF THE 18TH DAY OF DECEMBER, 1996
B E T W E E N:
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP,
a limited partnership constituted under the laws of the
Province of Ontario
- and -
APOLLO GENETICS, INC.,
a corporation subsisting under the laws of Delaware
RECITALS:
1. Apollo is the licensee or proprietor of know-how, intellectual property
rights and materials relating to the use of estrogen in the treatment of
Chronic Neurodegenerative Diseases.
2. Apollo has agreed to sell and the Fund has agreed to purchase a portion of
the revenues generated from such know-how, intellectual property rights and
materials, on the terms provided in this Agreement.
IN CONSIDERATION of the premises, the mutual covenants in this Agreement and of
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each Party), the Parties agree as follows:
ARTICLE 1
DEFINITIONS AND SCHEDULES
1.1 DEFINITIONS
In this Agreement:
"$.70 WARRANTS" means warrants to acquire 350,000 Apollo Common Shares for
a price of US$ .70 per Apollo Common Share for a period of 7 years from the
date of execution of this Agreement in the form and on the terms and
conditions attached hereto as Schedule A to be issued and delivered by
Apollo to the Fund on execution of this Agreement;
<PAGE>
2
"$.875 WARRANTS" means warrants to acquire 150,000 Apollo Common Shares for
a price of US$ .875 per common share for a period of 7 years from the date
of execution of this Agreement in the form and on the terms and conditions
attached hereto as Schedule A to be issued and delivered by Apollo to the
Fund on execution of this Agreement;
"AFFILIATE" means a Person which, directly or indirectly, controls, is
controlled by or is under common control with another, it being understood
and agreed that Athena Neurosciences, Inc. and Endocon, Inc. (including its
successor pursuant to the merger transaction referred to at page 33 of the
Private Placement Memorandum) are not Affiliates of Apollo hereunder;
"AGGREGATE ROYALTIES" means, at any time, the aggregate dollar amounts paid
by Apollo to the Fund pursuant to item (i) and (ii) of the Purchased
Rights;
"AGREEMENT" means this agreement, the recitals, all attached schedules and
any agreement, exhibit or schedule supplementing or amending this
agreement. All uses of the words "hereto", "herein," "hereof," "hereby"
and "hereunder" and similar expressions refer to this Agreement and not to
any particular section or portion of it. References to an Article,
Section, Subsection, Exhibit or Schedule refer to the applicable article,
section, subsection, exhibit or schedule of this Agreement;
"APOLLO COMMON SHARES" means the shares of common stock, $.02 par value per
share, of Apollo as such shares are constituted on the date hereof, as the
same may be reorganized, reclassified or changed pursuant to a capital
reorganization or otherwise;
"APOLLO" means Apollo Genetics, Inc., its existing and future Affiliates,
and any successors of Apollo Genetics Inc. or such Affiliates (including
any successor by reason of amalgamation, merger or statutory arrangement of
Apollo Genetics Inc. and/or such Affiliates);
"APPLICABLE LAW" means, in respect of any Person, property, transaction or
event, any statute, law, ordinance, rule, regulation, regulatory policy,
by-law, order, judgment, decree or restriction of any kind whatever
applicable to that Person, property, transaction or event;
"ATHENA AGREEMENT" means the Licence and Collaboration Agreement dated
April 16, 1996 between Apollo and Athena Neurosciences, Inc.;
"BOARD" means the board of directors of Apollo;
<PAGE>
3
"BUSINESS DAY" means any day of the week other than a Saturday, Sunday or
statutory or civic holiday observed in Toronto, Ontario or Cambridge,
Massachusetts;
"BUSINESS" means the business of Apollo relating to the Technology as has
been carried on by it prior to the date hereof and as may be carried on by
it hereafter;
"CHRONIC NEURODEGENERATIVE DISEASE" means any chronic neurodegenerative
disease or condition in which the anticipated treatment regimen is at least
six months; e.g., Alzheimer's disease;
"CLAIMS" has the meaning assigned thereto in Article 7;
"CLOSING DOCUMENT" means any document, instrument, undertaking or agreement
made pursuant to or in connection with this Agreement;
"CONFIDENTIAL INFORMATION" means any information that is so designated by
the Parties, or deemed to be such under this Agreement and any information
that is disclosed by or on behalf of Apollo on the one hand or by or on
behalf of the Fund on the other hand (the "disclosing party") to,
respectively, the Fund or Apollo (the "receiving party") including all
Know-How, except information which, as established by reasonable proof by
the receiving party:
(i) is already known to the receiving party;
(ii) is or becomes part of the public domain by publication or
otherwise without any breach of this Agreement;
(iii) has been published or is otherwise in the public knowledge
or is generally known to the public at the time of its
disclosure to the receiving party or that is thereafter
obtained from another source acting in good faith without
any breach of this Agreement; or
(iv) was not obtained from another source and can be demonstrated by
the receiving party to have been known or available to or
independently developed by the receiving party before disclosure
to the receiving party;
"CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") when used to indicate a relationship with
any Person means the possession of the power, in
<PAGE>
4
law or in fact, to direct or cause the direction of the management and
policies of a Person, whether through legal and beneficial ownership of a
majority of voting securities or other equity interests, by agreement or
otherwise;
"CONVERSION RIGHT" means the right of the Fund to convert all or part of
the Royalties into Apollo Common Shares as set out in Article 5 and
Schedule D hereof;
"DIRECT SALES REVENUE" means the gross amount actually received by Apollo
during the Term, determined in accordance with GAAP, from or in respect of
the sale by Apollo of Products before any expenses or costs less Sales
Taxes and normal returns and allowances for damaged and outdated product
but excluding all Fees and Income;
"DISTRIBUTION" means the development, marketing, sale, distribution,
licensing, sub-licensing or other method of exploiting the Technology
including the provision of services in relation thereto and "DISTRIBUTING"
and "DISTRIBUTE" shall have corresponding meanings;
"ENCUMBRANCE" means any encumbrance of any kind whatsoever, actual or
contingent, fixed or floating, including any security interest, mortgage,
lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed
trust (whether contractual, statutory or otherwise arising) or any other
right or claim of others of any kind whatsoever;
"ENDOCON AGREEMENT" means the Research and Collaboration Agreement between
Apollo and Endocon, Inc. made as of the 1st day of June, 1994, as amended
by a letter agreements dated February 1, 1996 and December 16, 1996;
"EVENT OF DEFAULT" has the meaning assigned thereto in Article 6;
"FEES AND INCOME" means the gross amount received by Apollo during the
Term, determined in accordance with GAAP, derived from or in respect of the
Technology other than Direct Sales Revenue including: [*]
* Confidential treatment has been requested for marked portion.
<PAGE>
5
[*]
"FINANCIAL STATEMENTS" means the audited financial statements of Apollo
dated December 31, 1995 and the unaudited financial statements for the 9
month period ending September 30, 1996, all as attached hereto as Schedule
G;
"FINANCING" means the raising of funds by Apollo by issuance of additional
Apollo Common Shares or securities convertible into or exchangeable for
Apollo Common Shares;
"FUND" means Neuroscience Partners Limited Partnership, its existing and
future Affiliates, and any successors of Neuroscience Partners Limited
Partnership or such Affiliates (including any successors by reason of
amalgamation, merger or statutory arrangement of Neuroscience Partners
Limited Partnership and/or such Affiliates);
"GAAP" means generally accepted accounting principles from time to time
approved by the American Institute of Public Chartered Accountants, or any
successor institute, applicable as at the date on which any calculation or
determination is required to be made in accordance with generally accepted
accounting principles, and where the American Institute of Public Chartered
Accountants includes a recommendation in its Handbook concerning the
treatment of any accounting matter, such recommendation shall be regarded
as the only generally accepted accounting principle applicable to the
circumstances that it covers;
"GOVERNMENTAL AGENCY" means any domestic or foreign government whether
federal, provincial or municipal and any governmental agency, governmental
authority, governmental tribunal or governmental commission of any kind
whatever;
"INCLUDING", when used herein or in any Closing Document, means "including
without limitation" and shall not be construed to limit any general
statement which it follows to the specific or similar items or matters
immediately following it;
"INDEMNIFIED PARTY" has the meaning assigned thereto in Article 6;
* Confidential treatment has been requested for marked portion.
<PAGE>
6
"INDEMNIFYING PARTY" has the meaning assigned thereto in Article 6;
"INDEMNITY NOTICE" has the meaning assigned thereto in Article 6;
"INITIAL PUBLIC OFFERING" shall mean the initial public offering of Apollo,
a reverse take-over or any other event pursuant to which securities of
Apollo become listed and posted for trading on any stock exchange or
qualified for unlisted trading privileges on any trade reporting and
quotation system for over-the-counter trading;
"KNOW-HOW" means all technical, scientific, medical or other information,
trade secrets, know-how, pre-clinical, clinical, pharmacological,
Distribution, manufacturing or other data, concepts, ideas, experimental,
medical or manufacturing methods and procedures, testing results, assays,
formulations, depictions, descriptions, business or scientific plans,
marketing studies and plans, customer lists and any other written, printed
or electronically stored materials, pharmaceutical compounds and any other
natural or man-made pharmaceutical materials and any other intellectual
property including the Patent Rights invented, developed, controlled or
acquired prior to or during the Term by or on behalf of Apollo related to
the Technology;
"NOTICE" has the meaning assigned thereto in Section 9.13;
"PARTIES" means Apollo and the Fund, collectively, and "PARTY" means any
one of them;
"PATENT RIGHTS" means all patents and patent applications set forth in
Schedule B and all other patents and patent applications applied for, filed
by or issued, licensed or assigned to or under the control of, Apollo in
which an estrogen issued for the treatment of Chronic Neurodegenerative
Diseases and all improvements thereto made by Apollo during the Term or in
respect of which Apollo, during the Term, has any right, licence, title or
interest including all divisions, continuations, partial continuations,
extensions, substitutions, confirmations, registrations, revalidations,
additions or reissues of or to any of such patents or patent applications;
"PERSON" includes an individual, body corporate, partnership, joint
venture, cooperative, trust or unincorporated organization, the Crown or
any agency or instrumentality thereof, or any other entity recognized by
law;
<PAGE>
7
"PRIME RATE" for any day means the rate of interest expressed as a rate per
annum that Royal Bank of Canada establishes at its head office in Toronto,
Ontario as a reference rate of interest that it will charge on that day for
Canadian Dollar demand loans to its corporate customers in Canada and which
it at present refers to as its prime rate;
"PRIVATE PLACEMENT MEMORANDUM" means the confidential Private Placement
Memorandum of Apollo dated June 19, 1996;
"PRODUCT RIGHTS" means the Know-How, Patent Rights and Trade Marks;
"PRODUCTS" means all forms and dosages of any product, system or service
and any enhancements, substitutions or improvements thereof derived from or
relating to the Technology and Distributed during the Term and "PRODUCT"
means any one of them;
"PURCHASED RIGHTS" means:
(i) the right to receive [*]% of all Direct Sales Revenue;
(ii) the right to receive [*]% of all Fees and Income;
(iii) the granting and issuance to the Fund of the $.70 Warrants and
the $.875 Warrants;
(iv) the Conversion Right; and
(v) the registration rights to be granted to the Fund by Apollo pursuant
to the Registration Rights Agreement to be entered into pursuant to
Section 9.1(e).
"PURCHASE PRICE" has the meaning set forth in Section 2.1;
"REGISTRATION" with respect to any Product means the obtaining of all
approvals and authorizations under Applicable Law to legally manufacture,
package, and Distribute the relevant Product to end users for therapeutic
purposes and "REGISTERED" shall have a corresponding meaning;
"ROYALTIES" means the dollar amounts payable by Apollo to the Fund pursuant
to item (i) and (ii) of the Purchased Rights;
* Confidential treatment has been requested for marked portion.
<PAGE>
8
"SALES TAXES" means all goods and services taxes, sales taxes, excise and
value added taxes assessed on sales of the Products under Applicable Law;
"TAX RETURNS" means all reports, returns and other documents filed or
required to be filed by Apollo in respect of Taxes or in respect of or
pursuant to any Applicable Law;
"TAXES" means all federal, provincial, state, municipal, foreign,
withholding or other taxes, imposts, levies, assessments and government
fees, charges or dues, lawfully levied, assessed or imposed under
Applicable Law;
"TECHNOLOGY" means Patent Rights and Know-How related to the use of
estrogen in the treatment and cure of Chronic Neurodegenerative Diseases,
including the Patent Rights and Know-How related to the Neurestrol,
Neuromidol and estrogen Novel Neurosteroids programs described in the
Private Placement Memorandum under the heading, "Research and Development
Programs";
"TERM" in respect of each Product and each country in the world, means the
period commencing on the date hereof and ending on the day that is the
later of: (i) ten (10) years after the day of first commercial sale of the
last form/dosage combination of the relevant Product to be Registered in
the relevant country by Apollo or by one of its licensees to a Third Party
customer in a bona fide arm's length transaction in the country; and (ii)
the expiry date of the last relevant Patent Right to expire in the relevant
country;
"THIRD PARTY" means any Person other than Apollo or the Fund;
"TRADE MARKS" means any and all trade marks, service marks or symbols,
trade devices, certification marks, trade or business names and
applications therefor in respect of or relating to the any Products, the
Product Rights or the Technology filed by or issued, licensed or assigned
to or under the control of, Apollo including Neurestrol and Neuromidol; and
"TRANSMISSION" means any electronic means of sending messages, including
facsimile transmission, which produces a paper record.
<PAGE>
9
1.2 SCHEDULES
The following Schedules form part of this Agreement:
SCHEDULE DESCRIPTION OF SCHEDULE
A Form of Warrants
B Patent Rights
C Agreements
D Terms and Conditions Governing Conversion Right
E Form of Subscription Agreement
F Form of Registration Rights Agreement
G Financial Statements
H Grants and Options
ARTICLE 2
PURCHASED RIGHTS
2.1 SALE OF PURCHASED RIGHTS TO THE FUND
In consideration of the payment of five hundred thousand United States Dollars
by the Fund to Apollo (the "PURCHASE PRICE"), payable without increase or
deduction for or on account of any Taxes on execution of this Agreement, Apollo
hereby sells, assigns, issues, grants and transfers free and clear of all
Encumbrances throughout the Term, the Purchased Rights and agrees to pay to the
Fund the Royalties free and clear of all Encumbrances throughout the Term.
2.2 PAYMENT OF ROYALTIES
Apollo shall pay the Royalties to the Fund without increase or deduction for or
on account of any Taxes thirty (30) days after each March 31, June 30, September
30 and December 31 during the Term based on the Direct Sales Revenue, and Fees
and Income in respect of each such immediately preceding quarterly period.
2.3 MAXIMUM ROYALTIES
Apollo's obligation to pay Royalties shall terminate effective on the 1st day of
the then following calendar year in the event that Aggregate Royalties in
respect of the period ending on the last day of any of the calendar years set
out below are equal to or greater than the respective amounts set out below.
With respect to the years ending after December 31, 2007, the Parties agree to
<PAGE>
10
negotiate in good faith appropriate Aggregate Royalties, consistent with this
Agreement, which shall set the maximum Royalties due. Notwithstanding any
automatic termination pursuant to this Section 2.3, Royalties shall accrue as
contemplated hereby until the date that Royalties up to and including the
last day of the relevant calendar year have been paid and become Aggregate
Royalties. Upon receipt of such Royalties, the obligation of Apollo to pay
Royalties shall terminate effective as of the 1st day of the relevant
calendar year.
[*]
2.4 CASH PAYMENT BUYOUT
Subject to Section 5.4, Apollo may terminate its obligation to pay Royalties by
notifying the Fund in writing on the first Business Day on or before November 30
in any of the calendar years set out in Section 2.3 above of its intention to do
so and paying, on the first date for payment of Royalties in the following
calendar year, by cash, certified cheque or bank draft payable to the Fund an
amount equal to the difference between the amount set out in Section 2.3 for the
relevant calendar year or agreed to for years subsequent to 2007 and the
Aggregate Royalties in respect of the period ending on the last day of the
relevant calendar year. Notwithstanding any notice of intention to terminate
the obligation to pay Royalties pursuant to this Section, Royalties shall accrue
as contemplated hereby until the date that the buyout cash payment is made to
the Fund in accordance herewith. Upon receipt of such payment, the obligation
of Apollo to pay Royalties shall terminate effective as of the 1st day of the
relevant calendar year.
* Confidential treatment has been requested for marked portion.
<PAGE>
11
2.5 LIABILITIES NOT ASSUMED
By entering into this Agreement or any Closing Document, the Fund is not
assuming and shall not be responsible for any of the liabilities, debts or
obligations of Apollo whatsoever, whether present, future, contingent or
absolute and whether or not relating to the Technology, the Product Rights, the
Products or the Purchased Rights or to any other thing, including any and all
product liability and patent infringement claims relating to the Products or
Product Rights.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF APOLLO
Apollo represents and warrants to the Fund as follows and acknowledges that the
Fund is relying on such representations and warranties in entering into this
Agreement:
3.1.1 CORPORATE MATTERS
(a) Apollo is a corporation duly incorporated, organized and validly
existing under the laws of its jurisdiction of incorporation. No
proceedings have been taken or authorized by Apollo or, to the best of
Apollo's knowledge, by any other Person, with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding up of
Apollo.
(b) Apollo has all necessary power and capacity to execute and deliver,
and to observe and perform its covenants and obligations under, this
Agreement and the Closing Documents to which it is a party. Apollo
has taken all corporate action necessary to authorize the execution
and delivery of, and the observance and performance of its covenants
and obligations under, this Agreement and the Closing Documents to
which it is a party.
(c) This Agreement and each Closing Document to which Apollo is a party
has been duly executed and delivered by Apollo, and this Agreement and
each Closing Document to which Apollo is a party, constitutes a valid
and binding obligation of Apollo enforceable against it in accordance
with its terms, provided that enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar
<PAGE>
12
laws generally affecting enforceability of
creditors' rights and that equitable remedies such as specific
performance and injunction are in the discretion of the court from
which they are sought.
3.1.2 THE FINANCIAL STATEMENTS
The Financial Statements:
(a) have been prepared in accordance with GAAP, applied on a basis
consistent with that of the preceding periods, except that, in the
case of unaudited financial statements, they may not contain all of
the footnotes required by GAAP;
(b) are complete and accurate in all material respects;
(c) accurately disclose the assets, liabilities and financial position of
Apollo and the results of the operations of Apollo as at the dates
thereof and for the periods covered thereby; and
(d) contain or reflect adequate reserves for all liabilities and
obligations of Apollo, as at the date thereof.
No information has become available to Apollo that would render the Financial
Statements incomplete or inaccurate.
3.1.3 UNDISCLOSED LIABILITIES
Apollo has no liabilities of any kind except:
(a) liabilities disclosed or provided for in the Financial Statements or
the Private Placement Memorandum; and
(b) liabilities incurred in the ordinary course of business since
September 30, 1996 which are consistent with past practice and are
not, in the aggregate, material and adverse to the financial condition
or results of operations of Apollo.
3.1.4 ABSENCE OF CHANGES
Since September 30, 1996:
(a) Apollo has conducted its business in the ordinary course and has not
incurred any debt, obligation or liability out of the ordinary course
of business;
<PAGE>
13
(b) there has not been any change in the financial condition or results of
operations of Apollo, other than changes in the ordinary course of
business, and such changes: (i) have not, either individually or in
the aggregate, been materially adverse; and (ii) have not had or are
not reasonably expected to have, either before or after the date
hereof, a material adverse effect on the financial condition of Apollo
or its future prospects; and
(c) there has not been any change in, creation of, termination, amendment
or revocation of any contract, lease, licence, patent or other
agreement or any damage, destruction, loss, labour dispute or other
event, development or condition of any character (whether or not
covered by insurance) which has had, or could have, a material adverse
affect on Apollo or its future prospects.
3.1.5 MATERIAL CONTRACTS
(a) Except for the patents and patent applications disclosed in
Schedule B and the instruments, contracts, leases, licences,
rights and other agreements disclosed in Schedule C, Apollo is
not a party to or bound by any instrument, contract, lease,
licence, right, patent or other agreement whatsoever, whether
oral or written, which relates to the Technology, the Product
Rights, the Products or the Purchased Rights. True, correct
and complete copies of all such instruments, contracts, leases,
licences, rights patents and other agreements have been
delivered to the Fund or its solicitors prior to the date hereof.
(b) The instruments, contracts, leases, licenses, rights and other
agreements disclosed in Schedule C are all in good standing
and in full force and effect with no amendments except as
disclosed in Schedule C and are valid and binding obligations
of the parties thereto enforceable in accordance with their
respective terms provided
that enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, restructuring and other similar laws
affecting enforceability of creditors' rights and that equitable
remedies such as specific performance and injunction are in the
discretion of the court from which they are sought. Each of the
parties thereto has complied with all material terms thereof,
has paid all amounts due thereunder, has not waived any rights
or defaults thereunder and no default or breach exists in respect
thereof on the part of any of the parties thereto and no event has
occurred which, after the giving of notice or the lapse of time or
both, would constitute such a default or breach.
<PAGE>
14
3.1.6 ABSENCE OF CONFLICTING AGREEMENTS
None of the execution and delivery of, or the observance and performance by
Apollo of, any covenant or obligation under this Agreement or any Closing
Document to which it is a party, or the consummation of any of the transactions
contemplated hereby or thereby:
(a) contravenes or results in, or will contravene or result in, a
violation of or a default under (with or without the giving of notice
or lapse of time, or both) or in the acceleration of any obligation
under:
(i) any Applicable Law;
(ii) the certificate of incorporation, memorandum of association,
articles of association, by-laws, directors' or shareholders'
resolutions of Apollo; or
(iii) any instrument, contract, lease, license, right or other
agreement to which Apollo is a party, or by which it is bound or
affected; or
(b) result in the creation or imposition of any Encumbrance on Apollo or
on the Purchased Rights.
3.1.7 CONSENTS, APPROVALS, ETC.
No consent, approval, licence, order or authorization, registration,
declaration or filing with or of any Governmental Agency or other Person is
required by Apollo, in connection with:
(a) the execution and delivery by Apollo of this Agreement and the Closing
Documents to which it is a party;
(b) the observance and performance by it of its obligations under this
Agreement and the Closing Documents to which it is a party; or
(c) the consummation of any of the transactions contemplated hereby or
thereby.
<PAGE>
15
3.1.8 COMPLIANCE WITH APPLICABLE LAW
Apollo has conducted and is conducting Business in compliance with all
Applicable Law in all material respects, and not in breach of any Applicable
Law, except for breaches which in the aggregate are not material.
3.1.9 LITIGATION
There is no claim, demand, suit, action, cause of action, dispute,
proceeding, litigation, investigation, grievance, arbitration, governmental
proceeding or other proceeding including appeals and applications for review,
in progress against, by or relating to Apollo, nor, to the best of Apollo's
knowledge, are any of the same pending or threatened. There is not presently
outstanding against Apollo any judgment, decree, injunction, rule, order or
award of any court, Governmental Agency or arbitrator that may adversely
affect the Technology, the Product Rights, the Products, the Purchased Rights
or Apollo in any way.
3.1.10 PURCHASED RIGHTS
Apollo is entitled to sell, assign, issue, grant and transfer the Purchased
Rights and pay the Royalties to the Fund as herein contemplated. Except as
contemplated by this Agreement or as disclosed in Schedule H, there has been
no sale, conveyance, assignment or granting of any licences, royalties,
options or similar rights to or the creation of any Encumbrance on or in
respect of any of the Purchased Rights in favour of any other Person.
3.1.11 NO OPTIONS
No Person other than the Fund has any agreement, option, warrant or right, or
any right capable of becoming any of the foregoing, for the purchase of all
or any of Apollo's right, title or interest in the Technology, the Product
Rights, any of the Products or any of the Purchased Rights, except as
disclosed in Schedule H.
3.1.12 PRODUCT RIGHTS
(a) Schedule B sets forth a true and complete list of all Patent
Rights indicating which are owned by, are licensed to or under the
control of Apollo. The Product Rights are sufficient to
conduct the Business as it is being conducted. To the best of
Apollo's knowledge, the conduct of the Business does not
infringe upon or otherwise interfere with any patent, trade
mark, trade name, industrial design or copyright of any other
Person. Apollo is not aware of any infringement of, passing-off
related to, or other
<PAGE>
16
interference with the Product Rights by any Person or any claim
by any Person that any of the Trade Marks are, or may be, invalid
or unenforceable or non-distinctive of Apollo.
(b) To the best of Apollo's knowledge:
(i) all patent applications of Apollo included as part of the Patent
Rights are currently pending before the applicable administrative
agencies and are being prosecuted by Apollo with reasonable
diligence;
(ii) each of the issued patents included as part of the Patent Rights
and each claim therein is valid and enforceable according to its
terms;
(iii) the Patent Rights are the only patents issued or pending in
any country in respect of the subject matter claimed in the
Patent Rights;
(iv) there have been no claims by any Third Party of infringing any
patent or other right of any kind;
(v) the inventions claimed in the Patent Rights are new, useful and
not obvious;
(vi) there has been no inequitable conduct or abuse of the Patent
Rights by or on behalf of Apollo or its predecessors in title, if
any, in respect of the Patent Rights;
(vii) neither Apollo nor any Third Party has filed any disclaimer
or made or permitted any other voluntary reduction in the scope
of the Patent Rights;
(viii) the inventions claimed in the Patent Rights may be practised
without infringing any patent or other right of any kind of any
Third Party; and
(ix) the Patent Rights and the inventions claimed in them have not
been dedicated to the public
<PAGE>
17
3.1.13 NON-ARM'S LENGTH TRANSACTIONS
With respect to the Business:
(a) Apollo has not acquired or had the use of any property from any
employee, officer, director or shareholder of Apollo or any of their
respective associates (each, an "Insider"); and
(b) Apollo has not disposed of any such property to any Insider for
proceeds less than the fair market value.
3.1.14 TAX RETURNS
(a) Apollo has filed all Tax Returns on time and with the appropriate
Governmental Agencies for all fiscal periods ending prior to the date
hereof. Each such Tax Return was materially correct and complete.
(b) Apollo has paid all Taxes due and payable as reflected on its Tax
Returns and has paid all assessments and reassessments it has received
in respect of Taxes. The provisions for Taxes reflected in the
Financial Statements are sufficient to cover all liabilities for Taxes
that have been assessed against Apollo, whether or not disputed, or
are accruing and due in respect of the Business, its operations or
property during the periods covered by the Financial Statements and
all prior periods. Except to the extent provided for in the financial
statements, Apollo is not liable for any Taxes at the date hereof or
for the payment of any instalment in respect of Taxes due in respect
of its current taxation year.
(c) No reassessments of Taxes have been issued and are outstanding.
To the best of Apollo's knowledge, no Governmental Agency has
challenged, disputed or questioned Apollo in respect of Taxes
or of any Tax Returns. Apollo is not negotiating any draft
assessment or reassessment with any Governmental Agency.
3.1.15 AUTHORIZED AND ISSUED SHARE CAPITAL
(a) The authorized capital of Apollo consists of 20,000,000 shares
shares of common stock, $.02 par value per share (the "Common
Shares") and 4,000,000 shares of preferred stock, $.01 par value
per share (the "Preferred Shares") of which 13,267,843 Common
Shares (not including the Common Shares to be issued to the
<PAGE>
18
Fund pursuant hereto) and no Preferred Shares have been validly
issued and are outstanding.
(b) Apollo has allotted and reserved, and there shall remain
unissued, out of its authorized capital a sufficient number of
common shares to satisfy the rights of purchase and issue granted
pursuant to the $.70 Warrants, the $.875 Warrants and the
Conversion Right.
(c) Upon due exercise of the $.70 Warrants, the $.875 Warrants and
upon receipt by Apollo of payment in respect of the exercise
thereof as provided for therein, and upon due exercise of the
Conversion Right, the Apollo Common Shares issued in respect
thereof will be duly and validly issued as fully paid and
non-assessable shares and will be issued in compliance with all
Applicable Laws including any securities law, rule, regulation
or regulatory policy applicable thereto.
3.1.16 DISCLOSURE
Except as otherwise disclosed herein and that Apollo has been advised that
the Endocon, Inc. transaction described at Page 33 of the Private Placement
Memorandum will not be completed, no representation or warranty made by
Apollo in this Agreement or in any Closing Document and no statement in the
Private Placement Memorandum contains any untrue statement of a material fact
or omits to state any material fact necessary to make any such
representation, warranty or statement not misleading, in light of the
circumstances under which it was made. Without limiting the scope of the
foregoing, Apollo is not aware of any change, event or occurrence that has
taken place or is pending that has, or in the future could have, a material
adverse effect on the value or ownership of the Purchased Rights or the
Business, including any pending or present change in any Applicable Law or
other requirement, including the obtaining or maintenance of permits,
licences or approvals, which has not been disclosed in this Agreement or the
Private Placement Memorandum.
3.2 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to Apollo as follows and acknowledges that
Apollo is relying on such representations and warranties in entering into
this Agreement:
<PAGE>
19
3.2.1 CORPORATE MATTERS
(a) The Fund is a limited partnership duly formed under the laws of
the Province of Ontario. No proceedings have been taken or
authorized by the Fund or, to the best of the Fund's knowledge,
by any other Person, with respect to the bankruptcy, insolvency,
liquidation, dissolution or winding up of the Fund.
(b) The Fund has all necessary power and capacity to execute and
deliver, and to observe and perform its covenants and obligations
under, this Agreement and the Closing Documents to which it is a
party. The Fund has taken all action necessary to authorize the
execution and delivery of, and the observance and performance of
its covenants and obligations under, this Agreement and the
Closing Documents to which it is a party.
(c) This Agreement and each Closing Document to which the Fund is a
party has been duly executed and delivered by the Fund, and this
Agreement and each Closing Document to which the Fund is a party
constitutes, a valid and binding obligation enforceable against
it, in accordance with its terms; provided that enforcement may
be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting enforceability of creditors' rights and that equitable
remedies such as specific performance and injunction are in the
discretion of the Court from which they are sought.
3.2.2 ABSENCE OF CONFLICTING AGREEMENTS
None of the execution and delivery of, or the observance and performance by
the Fund of, any covenant or obligation under this Agreement or any Closing
Document to which the Fund is a party, or the consummation of the
transactions contemplated thereby, contravenes or results in, or will
contravene or result in, a violation of or a default under (with or without
the giving of notice or lapse of time, or both) or in the acceleration of any
obligation under:
(a) any Applicable Law;
(b) the limited partnership agreement of the Fund; or
(c) any instrument, contract, lease, license, right, patent or other
agreement to which the Fund is a party, or by which it is bound or
affected.
<PAGE>
20
3.2.3 CONSENTS, APPROVALS, ETC.
No consent, approval, licence, order or authorization, registration, declaration
or filing with or of any Governmental Agency or other Person is required by the
Fund, in connection with:
(a) the execution and delivery by the Fund of this Agreement and the
Closing Documents to which it is a party;
(b) the observance and performance by the Fund of its obligations
under this Agreement and the Closing Documents to which it is
a party; or
(c) the consummation of any of the transactions contemplated thereby.
3.2.4 INVESTMENT
The Fund is acquiring the $0.70 Warrants, the $.875 Warrants and the Apollo
Common Shares to be issued to the Fund upon exercise of the $.70 Warrants, the
$.875 Warrants and/or exercise of the Conversion Right (collectively, the
"Securities") for investment for the Fund's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and the Fund has no present intention of selling, granting any participation in,
or otherwise distributing the same.
3.2.5 AGREEMENT FOR SALE
The Fund does not have any contract, undertaking, agreement or arrangement with
any Person to sell, transfer or grant a participation to such Person or to any
other Person, with respect to any of the Securities.
3.2.6 INVESTMENT EXPERIENCE
The Fund acknowledges that it can bear the economic risk of its investment in
Apollo and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in the
Securities.
3.2.7 RESTRICTED SECURITIES
The Fund understands that the Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from Apollo in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be
<PAGE>
21
resold without registration under the SECURITIES ACT of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the Fund
represents that it is familiar with Rule 144, as presently in effect
thereunder, and understands the resale limitations imposed thereby and by the
Act.
3.2.8 FURTHER LIMITATIONS ON DISPOSITION
The Fund further agrees not to make any disposition of all or any portion of the
Securities unless:
(a) there is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) the Fund shall have notified Apollo of the proposed disposition and,
if reasonably requested by Apollo within 2 Business Days of delivery
of such notice, the Fund shall have furnished Apollo with an opinion
of counsel that such disposition will not require registration of such
shares under the Act. It is agreed that Apollo will not require
opinions of counsel for transactions made pursuant to Rule 144 or Rule
144A, except in unusual circumstances.
3.2.9 LEGENDS
It is understood that the certificates evidencing the Apollo Common Shares to be
issued to the Fund may bear one or all of the following legends:
(a) "The shares represented by this certificate have not been registered
under the Act, or any state securities law and may not be transferred
except (i) pursuant to an effective registration statement under the
Act or (ii) upon first furnishing to the Company an opinion of counsel
that such transfer is not in violation of the registration
requirements of the Act or any state securities law."
(b) Any legend required by the securities laws of the Commonwealth of
Massachusetts or by any other securities laws of other states with
which the Company and the Fund must comply in order to distribute the
Apollo Common Shares pursuant to this Agreement.
<PAGE>
22
3.2.10 LAWS OF FUNDS JURISDICTION
The Fund has satisfied itself as to the full observance of the laws of such
its jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including: (i) the legal
requirements of such jurisdiction for the purchase of the Securities; (ii)
any foreign exchange restrictions applicable to such purchase; (iii) any
governmental or other consents that may need to be obtained; and (iv) the
income tax and other tax consequences, if any, which may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities.
3.3 COMMISSION
Each Party represents and warrants to the other that the other Party will not
be liable for any brokerage commission, finder's fee or other like payment in
connection with the transactions contemplated hereby because of any action
taken by, or agreement or understanding reached by, that Party.
3.4 NON-WAIVER
No investigations made by or on behalf of the Fund at any time shall waive,
diminish the scope of or otherwise affect any representation or warranty made by
Apollo herein or pursuant hereto.
3.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in Sections 3.1.1 to 3.1.9, inclusive,
Sections 3.1.13 to 3.1.16, inclusive and Sections 3.2.1 to 3.2.3, inclusive of
this Agreement or in any Closing Document shall survive for three years after
the date of execution of this Agreement. The representations and warranties
made by Apollo in Sections 3.1.10 to 3.1.12, inclusive, shall survive until one
year after the expiration of the Term. After such period, neither Party shall
have any further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such period.
ARTICLE 4
COVENANTS
4.1 COVENANTS
During the Term, Apollo shall, at its own expense, act as follows:
(a) NON-ARM'S LENGTH TRANSACTIONS - In the event that any Affiliate
becomes entitled to receive any revenue or payments of
<PAGE>
23
the type defined by Direct Sales Revenue or Fees and Income (as
such definitions are modified to be applicable to such
Affiliate), then Apollo shall cause such Affiliate to execute an
agreement in form and substance reasonably satisfactory to the
Fund obligating such Affiliate to be bound by all obligations of
this Agreement and, without any payment by the Fund to Apollo or
the Affiliate, Apollo shall cause such Affiliate to perform such
obligations and Apollo shall indemnify the Fund in respect
thereof (including the obligation to pay the Fund the Royalties)
whether or not any such agreement is entered into;
(b) REPORTING - Apollo shall:
(i) provide the Fund, concurrent with the delivery of each quarterly
payment of Royalties referred to in Section 2.2, with a report
detailing: (1) the Direct Sales Revenue and Fees and Income for
the relevant quarterly period; and (2) each agreement and licence
relating to the Technology, the Product Rights or the Products
entered into, amended, modified or terminated in such quarterly
period by Apollo, with the names of the parties thereto and a
summary of the financial terms thereof together with a
certificate of a senior officer of Apollo certifying the accuracy
of such information. The Fund agrees to enter into any
non-disclosure agreements that Apollo may reasonably request
to carry out its obligations under this clause 4.1(b)(i)(2);
(ii) provide the Fund with (1) quarterly unaudited financial
statements no later than forty-five (45) days after the end
of each fiscal quarter; and (2) the annual audited
financial statements and such other financial information
and management reports, including budgets, business
development, marketing and strategic plans relating to
the Technology, the Products or the Product Rights as are
provided to the Board, at the same time that such
information is provided to the Board. It is agreed by the
Parties that Apollo's obligations under this Section
4.1(b)(ii) following the Initial Public Offering shall be
fulfilled by the delivery to the Fund of all documents
required by Applicable Law to be sent to shareholders at
the same time that those documents are sent to shareholders;
and
<PAGE>
24
(iii) prepare all such financial statements in accordance with
GAAP.
The information contained in the above reports shall be deemed to
be Confidential Information hereunder.
(c) MANAGEMENT MEETINGS - If so requested by the Fund and
provided that no nominee of the Fund is a member of the Board,
senior officers of Apollo shall, up to four times annually, meet
with representatives of the Fund at a mutually convenient time
and place to discuss the clinical development plans, business
plans, budgets, expansion activities, financial results and
projections, sales and marketing results, projections, activities
and prospects in an open and frank manner as they relate to the
Technology, the Product Rights and the Products and shall, at
such meetings, provide the Fund with the information conveyed by
any licensees of Apollo as part of their reporting obligations to
Apollo, provided disclosure of such information is not precluded
by confidentiality obligations contained in the Agreements with
such other licensees. Information disclosed pursuant to this
Subsection shall be deemed to be Confidential Information
hereunder.
(d) NO SALE - Apollo shall not sell, assign, transfer or
otherwise dispose of or create any Encumbrance on any of its
right, title or interest in any of the Technology, the Product
Rights or the Products or amend any existing instrument,
contract, lease, licence, sub-licence, right or other agreement
pertaining thereto without: (i) giving the Fund at least 2
Business Days written notice of the commencement of serious
discussions setting forth the proposed terms and proposed
purchaser; (ii) giving the Fund at least 10 Business Days
detailed written notice of the proposed terms and proposed
purchaser; and (iii) obtaining the Fund's prior written consent
which will not be unreasonably withheld or delayed, provided the
Fund is satisfied with the credit worthiness of the purchaser,
the consideration is payable in cash only prior to the end of the
Term, it being acknowledged and agreed that the Fund has
consented to the Athena Agreement and the Endocon Agreement.
(e) TRANSACTIONS WITH AFFILIATES - In the event that any Affiliate
of Apollo becomes entitled to Distribute the Product Rights or
Products, then Apollo shall cause such Affiliate to execute and
deliver an agreement in form and substance satisfactory to the
Fund obligating such Affiliate to be bound by all of the
<PAGE>
25
obligations of Apollo pursuant to this Agreement, with respect
to the relevant Product Right or Product. Apollo unconditionally
guarantees to the Fund the due and timely payment and performance
of all such obligations, including the obligation to pay the Fund
the Royalties, whether or not any such agreement is entered into.
(f) INSURANCE - During the term of this Agreement and for thirty (36)
months thereafter, Apollo shall:
(i) maintain at its expense all insurance types that are
common and applicable to its business, including but not
limited to general liability, workers compensation and
Directors and Officers insurance as well as keyman life
insurance for its chief executive officer. In addition,
Apollo shall use its best efforts to purchase product
liability insurance during the period covering any
clinical trials on reasonably commercial terms and shall
purchase or obtain product liability insurance coverage
during the period covering any Distribution of Products or
Product Rights and any manufacture by Apollo of Products
directly or through contractors or subcontractors. Apollo
shall cause the Fund to be named as an additional insured
on all such product liability insurance and shall supply to
the Fund all documents related to insurance reasonably
requested from time to time by the Fund, including evidence
of Apollo's compliance with the foregoing, copies of
policies, suitable certificates from Apollo's insurers to
the effect that such insurance coverage designates the Fund
as an additional insured and proof of premium payments.
Furthermore, Apollo shall, on a periodic basis update the
Fund as to the status of all insurance as described above;
(ii) obtain an undertaking from its product liability insurers to
the effect that all insurance coverage herein above
described shall not be permitted to lapse by default to pay
premiums without having first given a minimum of sixty (60)
days written notice to the Fund of such default. The Fund
reserves the right to pay
such premiums to keep such insurance coverage in full force and
effect and, in the event of so doing, Apollo shall reimburse the
Fund for all such premium payments and interest thereon at the
Prime Rate plus one percent (1%) annually, payable monthly and
calculated from (and including) the date
<PAGE>
26
payment is due to the date of payment by Apollo and both
before and after judgment.
If:
(i) Apollo fails to furnish proof of such insurance as required
above; or
(ii) at any time during the term of this Agreement and for
thirty-six (36) months thereafter, the Fund is notified of
the change, cancellation or lapse of such insurance, which
change, cancellation or lapse is not rectified by Apollo
within ten (10) days of the insurance status change,
then the Fund, in addition to all other remedies available to it
hereunder, may at its option obtain such insurance coverage and
Apollo shall reimburse the Fund for the premium cost therefor.
Apollo shall remit such premium cost to the Fund within ten (10)
days of receipt of notice from the Fund of the amount of such
premium cost. Notwithstanding the provision of insurance hereunder
by Apollo, Apollo agrees to indemnify and save harmless the Fund
from and against any Claims arising out of the death of or injury to
any Person or out of any damage to property resulting from the
Distribution, use, consumption or advertisement of the Technology,
Product Rights or Products.
(g) COMPLIANCE WITH LAWS - Apollo shall comply with all
Applicable Laws with respect to the Technology, the Product
Rights, the Products, the issuance of any Apollo Common Shares
to the Fund pursuant to the $.70 Warrants, $.875 Warrants or
the Conversion Right and the operation of the Business and its
business generally.
(h) MAXIMIZE RETURNS - Apollo shall use its best business judgement,
consistent with reasonable business practices, to maximize the
Royalties by diligently seeking to obtain Registration for the
Products and by diligently Distributing the Products.
(i) BOOKS AND RECORDS - Apollo shall maintain at its usual place of
business up-to-date records, reports, accounts, books and files
which shall accurately reflect all particulars pertaining to the
Product Rights, the Products and the calculation of Royalties.
<PAGE>
27
(j) BOARD OBSERVER STATUS - Unless the Fund has a duly elected
representative as a member of the Board, the Fund shall be
entitled, and Apollo shall permit the Fund, to have a nominee
participate in all Board meetings as an observer. The Fund may,
from time to time by written notice given to Apollo, designate a
nominee to be an observer at Board meetings. Until otherwise
notified in writing, the Fund's nominee shall be Michael
Callaghan. Apollo shall:
(i) notify the Fund of all Apollo Board meetings at the same
time and in the same manner that the directors of Apollo are
so notified. The Board shall meet a minimum of 4 times
annually; and
(ii) provide the Fund with a copy of all material and other
communication (including Board minutes and resolutions) given to
the directors of Apollo at the same time and in the same manner
that the directors are given such material or other
communication.
(k) ADDITIONAL FINANCINGS - Apollo shall provide the Fund with at least
30 days prior notice of any proposed new Financing. Except for the
Initial Public Offering, the Fund will be entitled at its sole option
to participate in any Financing on the most favorable terms and
conditions offered to any other potential investor, pro rata, in the
proportion that the number of Apollo Common Shares it holds or may
acquire pursuant to the $.70 Warrants, the $.875 Warrants and the
Conversion Right is to the number of issued Apollo Common Shares. The
Fund shall advise Apollo within 10 Business Days of the receipt of
notice of a new Financing from Apollo of its intention with respect to
participating in the relevant Financing, failing which it will be
deemed to have elected not to have participated in the relevant
Financing.
(l) NO NON-MONETARY CONSIDERATION - Apollo shall not, without the
prior written consent of the Fund not to be unreasonably
withheld, accept or solicit any non-monetary consideration in
respect of the sale, licensing or Distribution of any of the
Technology, the Product Rights or the Products.
(m) NOTIFICATION - Apollo shall promptly notify the Fund in writing
of any material adverse change in the business or affairs of
Apollo, any event or act or omission of Apollo which constitutes
an Event of Default, any transaction which will result in an
<PAGE>
28
acquisition of control of Apollo, the commencement of any
litigation against it in an amount in excess of $50,000 or
relating to the Technology, the Product Rights or the Products or
other occurrence out of the ordinary course of business, and each
such notification shall contain full particulars of the event or
events described therein.
(n) INTEREST - Apollo shall pay interest on all overdue amounts at
the Prime Rate plus 2% from the date that payment should have
been made pursuant to this Agreement to the date that the payment
is actually made.
4.2 NON-WAIVER AND AUDIT
The acceptance by the Fund of any payment in respect of the Purchased Rights
shall be deemed not to be a waiver of any of its rights hereunder. The
Fund's authorized agents, employees and representatives shall have the right
to inspect and audit at all reasonable times during business hours, but in
any event not more than once each calendar year of the Term, the books,
records, documentation, sales reports, statements of profit and loss and Tax
Returns and other documents of Apollo relating to the Business, the
Technology, the Product Rights, the Products, the Direct Sales Revenue and
Fees and Income. The information contained in the documents, etc. which are
inspected shall be deemed to be Confidential Information hereunder. In the
event that any such audit shall disclose an understatement of such Direct
Sales Revenue, Fees and Income or Royalties as reported to the Fund by
Apollo, then Apollo shall pay the Fund within 15 days after receipt of notice
from the Fund an amount equal to the amount the Royalties have been underpaid
in any such year of the Term, together with interest thereon at the Prime
Rate plus 5% calculated from the date such amount should have been paid to
the date of actual payment. Further, in the event that the underpayment
shall be 5% or more for any calendar year, Apollo shall reimburse the Fund
for the cost of such inspection and/or audit.
<PAGE>
29
ARTICLE 5
CONVERSION RIGHT
5.1 CONVERSION RIGHT
The Fund may at any time and from time to time up to 3 times during the Term
convert all or part of Apollo's future obligation to pay Royalties hereunder as
follows:
(a) Up to 50% of the Purchase Price in the aggregate may be converted
into Apollo Common Shares at a conversion rate per share equal to
the lower of: (i) US$ .875; and (ii) the price per share at which
Apollo Common Shares were issued pursuant to the Financing
immediately preceding the date on which the Fund exercises the
Conversion Right; and
(b) Up to 50% of the Purchase Price in the aggregate may be
converted into Apollo Common Shares at a conversion rate per
share equal to the lower of: (i) US$ 1.05; and (ii) the price per
share at which Apollo Common Shares were issued pursuant to the
Financing immediately preceding the date on which the Fund
exercises the Conversion Right.
5.2 TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
Any conversion of all or part of the Purchased Rights by the Fund into Apollo
Common Shares pursuant to the Conversion Right shall take place and be
completed on the terms and conditions set out in Schedule D.
5.3 PRO RATA REDUCTION OF ROYALTIES
Effective upon receipt of a certificate representing the relevant Apollo
Common Shares pursuant to any conversion of all or part of the future
Royalties by the Fund into Apollo Common Shares, but without any waiver by
the Fund of the payment of any Royalties accruing prior to the date thereof,
the percentage rates set out in items (i) and (ii) of the Purchased Rights
and the amounts set out in Sections 2.3 and 2.4 shall be reduced by the same
proportion that the portion of the Purchase Price converted bears to the
total Purchase Price so that, on an aggregate basis, if, for instance, half
of the Purchase Price has been converted pursuant to one or more conversions
by the Fund, the amount set out in item (i) of the Purchased Rights would be
equal to [*]%, the amount set out in (ii) of the Purchased Rights would be
equal to [*]% and the amounts set out in sections 2.3 and 2.4 would be equal
to:
* Confidential treatment has been requested for marked portion
<PAGE>
30
[*]
5.4 PARAMOUNTCY
If the Fund gives written notice to Apollo of its intention to exercise the
Conversion Right in accordance with this Agreement and Schedule D after
receipt from Apollo of written notice under Section 2.4 but prior to receipt
by the Fund of any payment pursuant to Section 2.4, the Fund's Conversion
Right shall be paramount and shall govern.
ARTICLE 6
DEFAULT
6.1 EVENTS OF DEFAULT
Each of the following events shall constitute an event of default (an "EVENT
OF DEFAULT") under this Agreement:
(a) if Apollo fails to make any payment of Royalties when due and
does not remedy such failure within thirty (30) days after
receiving notice from the Fund specifying the failure and
requiring that it be remedied;
(b) if Apollo commits a breach of or fails to observe or perform any
other agreement, covenant or provision in this Agreement or in any
Closing Document and does not remedy such breach or failure within
thirty (30) days after receiving notice from the Fund specifying
the breach or failure and requiring that it be remedied (or, if
incapable of remedy within thirty (30) days, then such longer
period, not to exceed ninety (90) days, as may be reasonable to
remedy such breach or failure provided Apollo uses its best
efforts throughout such period to remedy the same) or if any
representation or warranty contained herein or in any Closing
Document shall prove to be false or incorrect in any material
respect;
* Confidential treatment has been requested for marked portion
<PAGE>
31
(c) if Apollo does not pay its debts as they become due, admits in
writing its inability to pay its debts generally, makes an
assignment for the benefit of creditors or commits an act of
bankruptcy within the meaning of Applicable Law;
(d) any proceeding, voluntary or involuntary, is commenced respecting
Apollo pursuant to any statute relating to bankruptcy, insolvency,
reorganization of debts, liquidation, winding up or dissolution;
(e) any receiver, manager, receiver manager, trustee, sequestor,
custodian or liquidator or Person with similar powers is appointed
udicially or extra judicially for Apollo or for any of its property;
(f) Apollo defaults under any agreement with respect to any indebtedness
or other obligation to any Person exceeding [*], if such default has
resulted in, or may result, with notice or lapse of time or both, in,
the acceleration of any such indebtedness or obligation or the right
of such Person to realize upon any security; and
(g) Apollo passes any resolution for its liquidation, winding up or
dissolution.
6.2 REMEDIES
Upon the occurrence of any one or more Events of Default which are continuing
and not waived by the Fund in writing, then, in the case of an Event of Default
under subsections 6.1 (a) or (b), on the expiration of the notice period therein
specified; and in the case of an Event of Default under subsection 6.1(c) to
(g), inclusive, immediately upon such Event of Default occurring, or immediately
upon the occurrence of an acquisition of control of Apollo, the Fund may, in
addition to any other rights and remedies available hereunder at law or in
equity, terminate this Agreement or, in the case of an Event of Default under
Section 6.1(a) or (b) with respect to less than all of the Products, terminate
this Agreement with respect to the relevant Products only.
* Confidential treatment has been requested for marked portion
<PAGE>
32
ARTICLE 7
INDEMNIFICATION
7.1 MUTUAL INDEMNIFICATIONS FOR BREACHES OF WARRANTY, ETC.
Apollo agrees with the Fund and the Fund agrees with Apollo (the Party
agreeing to indemnify another Party being called the "INDEMNIFYING PARTY" and
the Party to be indemnified being called the "INDEMNIFIED PARTY") to
indemnify and save harmless the Indemnified Party, effective as and from the
date hereof, from and against any claims, demands, actions, causes of action,
damage, loss, cost, liability or expense ("CLAIMS") which may be made or
brought against the Indemnified Party or which it may suffer or incur as a
result of, in respect of, or arising out of any non-fulfillment of any
covenant or agreement on the part of the Indemnifying Party under this
Agreement or any Closing Document or any incorrectness in or breach of any
representation or warranty of the Indemnifying Party contained herein or in
any Closing Document. Any amount which an Indemnifying Party is liable to
pay to an Indemnified Party pursuant to this Section shall bear interest at a
rate per annum equal to the Prime Rate, calculated and payable monthly, both
before and after judgment, with interest on overdue interest at the same
rate, from the date the Indemnified Party disbursed funds, suffered damages
or losses or incurred a loss, liability or expense in respect of a Claim, to
the date of payment by the Indemnifying Party to the Indemnified Party. Any
amount which an Indemnifying Party is required to pay to an Indemnified Party
pursuant to this Section or pursuant to Section 7.2 (including interest
thereon) is called an "Indemnified Loss". The foregoing obligation of
indemnification in respect of such Claims shall be subject to the limitation
set forth in Section 3.5 hereof respecting the survival of the
representations and warranties of the Parties.
7.2 THIRD PARTY CLAIMS
If a Claim is made against an Indemnified Party by a Third Party for which
the Indemnified Party may be entitled to indemnification under Section 7.1,
the Indemnified Party shall give notice (the "INDEMNITY NOTICE") to the
Indemnifying Party specifying the particulars of such claim within 30 days
after it receives notification of the Claim. Failure to give such notice
within such time period shall not prejudice the rights of an Indemnified
Party except to the extent that the failure to give such notice materially
adversely affects the ability of the Indemnifying Party to defend the Claim
or to cure the breach or incorrectness of the representation, warranty,
covenant or agreement giving rise to the Claim. The Indemnifying Party shall
have the right to participate in any negotiations or proceedings with respect
to such Claim at its own expense. The Indemnified Party shall not settle or
compromise any such Claim without the prior written consent of the
Indemnifying Party, unless
<PAGE>
33
the Indemnifying Party has not, within 7 Business Days after the giving of
the Indemnity Notice, given notice to the Indemnified Party that it wishes to
dispute such Claim. If the Indemnifying Party does give such a notice, it
shall have the right at its own cost and expense to assume the defence of
such Claim and to defend such Claim in the name of the Indemnified Party.
The Indemnified Party shall provide to the Indemnifying Party all files,
books, records and other information in its possession or control which may
be relevant to the defence of such Claim. The Indemnified Party shall
co-operate in all reasonable respects in the defence of such Claim but at the
expense of the Indemnifying Party. If the Indemnifying Party fails, after
the giving of such notice, diligently and reasonably to defend such Claim
throughout the period that such Claim exists, its right to defend the Claim
shall terminate and the Indemnified Party may assume the defence of such
Claim at the sole expense of the Indemnifying Party. In such event, the
Indemnified Party may compromise or settle such Claim, without the consent of
the Indemnifying Party.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIAL INFORMATION
Confidential Information and all copies thereof made by the receiving party
including translations, compilations and partial copies shall remain the
property of the disclosing party and shall be returned to the disclosing party
upon request or termination of this Agreement, provided that each Party shall be
entitled to keep one (1) copy of such information with its legal counsel, for
the purposes of determining its rights and obligations hereunder. The receiving
party shall use the Confidential Information solely for the purposes described
in this Agreement.
8.2 NON-DISCLOSURE.
The receiving party shall hold in confidence, during and after the termination
or expiration of this Agreement, and not disclose, provide, or otherwise make
available, in whole or in part the Confidential Information to any Third Party
without the prior written consent of the disclosing party. The receiving party
shall ensure that only its employees and agents with a need to know the
Confidential Information shall have access to it. The receiving party shall
exercise a standard of care under this Section that is not less than the
standard of care it exercises under its own corporate policy for confidentiality
and use restrictions for its own Confidential Information. If and when the
receiving party is required at any time to disclose Confidential Information by
Applicable Law or by any Governmental Agency having
<PAGE>
34
jurisdiction, the receiving party must notify the disclosing party and use
reasonable efforts to have the Governmental Agency retain the Confidential
Information in confidence. Upon making such reasonable efforts, the
receiving party shall not be in breach of this Section.
ARTICLE 9
DELIVERIES ON EXECUTION
9.1 DELIVERIES UPON EXECUTION OF THIS AGREEMENT.
Upon execution of this Agreement:
(a) Apollo shall deliver to the Fund and the Fund shall deliver to Apollo
proof satisfactory to the Party receiving the same, acting reasonably,
that each of them has taken all necessary corporate and other steps
necessary to authorize and effect the completion of the matters herein
contemplated;
(b) the Fund shall pay the Purchase Price to Apollo by certified cheque,
bank draft or in such other manner as Apollo may reasonably direct in
writing;
(c) Apollo shall issue and deliver to the Fund certificates in favour of
the Fund representing the $.70 Warrants and the $.875 Warrants duly
executed under seal;
(d) the Fund and Apollo shall enter into a Subscription Agreement in the
form attached hereto as Schedule E, the Fund shall pay the
subscription price to Apollo by certified cheque, bank draft or in
such other manner as Apollo may reasonably direct in writing and
Apollo shall issue and deliver to the Fund a share certificate
representing the Apollo Common Shares purchased pursuant to the
Subscription Agreement registered in the name of the Fund or as the
Fund may in writing direct;
(e) the Fund and Apollo shall enter into a Registration Rights Agreement
in the form attached hereto as Schedule F;
(f) Evidence that Michael Callaghan has been duly and effectively
appointed as a director of Apollo satisfactory to the Fund shall be
delivered by Apollo; and
<PAGE>
35
(g) the Fund shall receive an opinion from Messrs. Palmer & Dodge LLP
dated the date hereof in form and substance satisfactory to the Fund
and its counsel, acting reasonably.
ARTICLE 10
GENERAL
10.1 HEADINGS
The division of this Agreement into Articles, Sections, Subsections, Exhibits
and Schedules and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation of this
Agreement. The Article, Section, Subsection, Exhibit and Schedule headings in
this Agreement are not intended to be full or precise descriptions of the
text to which they refer and are not to be considered part of this Agreement.
10.2 NUMBER AND GENDER
In this Agreement, words in the singular include the plural and vice-versa
and words in one gender include all genders.
10.3 ENTIRE AGREEMENT
This Agreement, together with the Closing Documents, constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, negotiations, discussions and
understandings, written or oral. There are no representations, warranties,
conditions, other agreements or acknowledgements, whether direct or
collateral, or express or implied, that form part of or affect this
Agreement, or which induced any Party to enter into this Agreement or on
which reliance is placed by any Party, except as specifically set forth in
this Agreement or in the Closing Documents.
10.4 AMENDMENT
This Agreement may be amended or supplemented only by a written agreement signed
by each Party.
10.5 WAIVER OF RIGHTS
Any waiver of, or consent to depart from, the requirements of any provision
of this Agreement shall be effective only if it is in writing and signed by
the Party giving it, and only in the specific instance and for the specific
purpose for which it has been given. No failure on the part of any Party to
exercise,
<PAGE>
36
and no delay in exercising, any right under this Agreement shall operate as a
waiver of such right. No single or partial exercise of any such right shall
preclude any other or further exercise of such right or the exercise of any
other right.
10.6 APPLICABLE LAW
This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws in force in the Commonwealth of Massachusetts. The
Parties irrevocably submit to the non-exclusive jurisdiction of the courts of
Commonwealth of Massachusetts with respect to any matter arising hereunder or
related hereto.
10.7 CURRENCY
Unless specified otherwise, all statements of or references to monetary
amounts in this Agreement are to United States Dollars.
10.8 TENDER
Any tender of documents or money hereunder may be made upon the Parties or
their respective counsel and money shall be tendered by certified cheque or
bank draft.
10.9 PERFORMANCE ON HOLIDAYS
If any action is required to be taken pursuant to this Agreement on or by a
specified date which is not a Business Day, then such action shall be valid
if taken on or by the next succeeding Business Day.
10.10 FINANCIAL REPORTING STANDARDS
All accounting and financial terms used herein and the treatment of any
accounting matter contemplated herein, unless specifically provided to the
contrary, shall be interpreted and applied in accordance with GAAP.
10.11 EXPENSES
Except that Apollo shall reimburse the Fund an amount up to US$ 15,000 in
respect of the legal fees which it incurs in preparing this Agreement and
completing the transaction contemplated therein, each Party shall pay all
expenses it incurs in authorizing, preparing, executing and performing this
Agreement and the transactions contemplated hereunder, whether or not the
Closing occurs, including all fees and expenses of its legal counsel, bankers,
<PAGE>
37
investment bankers, brokers, accountants or other representatives or
consultants.
10.12 TIME
Time is of the essence of this Agreement and each of its provisions.
10.13 NOTICES
Any notice, demand or other communication (in this Section, a "NOTICE")
required or permitted to be given or made hereunder shall be in writing and
shall be sufficiently given or made if:
(a) delivered in person during normal business hours of the recipient on a
Business Day and left with a receptionist or other responsible
employee of the recipient at the relevant address set forth below;
(b) except during any period of actual or imminent interruption of postal
services due to strike, lockout or other cause, sent by registered
mail; or
(c) sent by Transmission, charges prepaid and confirmed by registered mail
as provided in Subsection (b);
in the case of a notice to Apollo at:
1 Kendall Square, Suite 2200
Cambridge, Massachusetts
02139
Attention: President and CEO
Fax No.: (617) 621-7156
with a copy to Palmer & Dodge LLP at:
One Beacon Street
Boston, Massachusetts
02108-3190
Attention: Michael Lytton
Fax No.: (617) 227-4420
<PAGE>
38
and in the case of a notice to the Fund to its general partner at:
Neuroscience Partners Limited Partnership
c/o MDS Associ[caad 177]es-Neuroscience Inc.
100 International Boulevard
Etobicoke, Ontario
M9W 6J6
Attention: Senior Vice-President
Fax No.: (416) 213-4232
with a copy to Fasken Campbell Godfrey at:
Suite 4200
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1N6
Attention: Scott D. Conover
Fax No. (416) 364-7813
Any notice so given shall be deemed to have been given and to have been
received on the day of delivery, if so delivered, on the fifth Business Day
(excluding each day during which there exists any interruption of postal
services due to strike, lockout or other cause) following the mailing
thereof, if so mailed, and on the day following the day notice was sent by
Transmission, provided such day is a Business Day and if not, on the first
Business Day thereafter. Addresses for notice may be changed by giving
notice in accordance with this Section.
10.14 ASSIGNMENT
This Agreement and any or all of the rights and obligations hereunder may be
assigned by the Fund upon written notice to Apollo. Neither this Agreement,
any rights or obligations hereunder the Technology shall be assignable by
Apollo without the prior written consent of the Fund not to be unreasonably
withheld. Subject thereto, this Agreement shall enure to the benefit of and
be binding upon the Parties and their respective successors (including any
successor by reason of amalgamation or statutory arrangement of any Party)
and permitted assigns.
<PAGE>
39
10.15 FURTHER ASSURANCES
Each Party shall do such acts and shall execute such further documents,
conveyances, deeds, assignments, transfers and the like, and will cause the
doing of such acts and will cause the execution of such further documents as
are within its power as any other Party may in writing at any time and from
time to time reasonably request be done and/or executed, in order to give
full effect to the provisions of this Agreement and the Closing Documents.
10.16 INDEPENDENT PARTIES
Nothing contained in this Agreement shall in any way or for any purpose
constitute any Party a partner or agent or legal representative of any other
Party in the conduct of any business or otherwise or a member of a joint
venture or joint enterprise or create any fiduciary relationship among them.
No Party shall have any authority to act for or to assume any obligation or
responsibility on behalf of any other and no Party shall have any authority
to bind any other Party to act or to undertake any obligation or
responsibility whatsoever. Apollo agrees that it will only have recourse
against the assets of the Fund and it shall not have any recourse against the
limited partners of the Fund under any circumstances.
10.17 PUBLIC ANNOUNCEMENTS
The Parties agree to discuss and coordinate all public announcements
concerning the transactions contemplated herein except as may be necessary,
in the opinion of counsel to the Party making such disclosure, to comply with
the requirements of any Applicable Law. If any such public statement or
release is so required, the Party making such disclosure shall consult with
the other Party prior to making such statement or release, and the Parties
shall use reasonable efforts, acting in good faith, to agree upon a text for
such statement or release which is satisfactory to all Parties.
10.18 SEVERABILITY
If any covenant, obligation or provision of this Agreement or the application
thereof to any Person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such
covenant, obligation or agreement to Persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby and each covenant, obligation and provision of this Agreement shall
be separately valid and enforceable to the fullest extent permitted by law.
<PAGE>
40
10.19 COUNTERPARTS
This Agreement may be executed in any number of counterparts and by facsimile
transmission. Each executed counterpart shall be deemed to be an original.
All executed counterparts taken together shall constitute one agreement.
10.20 FACSIMILE EXECUTION
To evidence the fact that it has executed this Agreement, a Party may send a
copy of its executed counterpart to the other Party by facsimile
transmission. That Party shall be deemed to have executed this Agreement on
the date it sent such facsimile transmission. In such event, such Party
shall forthwith deliver to the other Party the counterpart of this Agreement
executed by such Party.
TO WITNESS THEIR AGREEMENT, the Parties have duly executed this Agreement on
the date first set forth above.
NEUROSCIENCE PARTNERS LIMITED
PARTNERSHIP by its General Partner
MDS ASSOCIES-NEUROSCIENCE INC.
Per: /s/ Michael J. Callaghan, Vice President
----------------------------------------
Michael J. Callaghan, Vice President
Per: /s/ Keith Dorrington, Vice-President
----------------------------------------
Keith Dorrington, Vice-President
APOLLO GENETICS, INC.
Per: _________________________________________
<PAGE>
SCHEDULE A
WARRANT TO PURCHASE COMMON STOCK
OF APOLLO GENETICS, INC.
See Exhibit 3.4 to this Registration Statement
<PAGE>
SCHEDULE B
PATENT RIGHTS
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
ESTROGEN COMPOUNDS ALL UNDER LICENSE TO APOLLO FROM UNIVERSITY OF FLORIDA RESEARCH FOUNDATION INC.
- -------------------------------------------------------------------------------------------------
[*]
- -------------------------------------------------------------------------------------------------
United States(1) Estrogen Compositions
(CIP of 08/149,175) 5,554,601 10/04/94 and Methods for Issued 09/10/96
Neuroprotection
- -------------------------------------------------------------------------------------------------
[*]
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
_________________
(1) Priority of US 08/149,175, which is now abandoned.
* Confidential treatment has been requested for marked portion
<PAGE>
- 2 -
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
ENDOCON, INC.'S PATENTS RELEVANT TO NEURESTROLs ALL ASSIGNED TO
ENDOCON, INC. BY THE INVENTOR, BOB LEONARD, AND NOW OWNED BY ENDOCON, INC.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COUNTRY/ PATENT/SERIAL FILING
REGION NUMBER DATE TITLE STATUS
- --------------------------------------------------------------------------------------
United States 4,748,024 4/6/87 Flash Flow Fused Issued (5/31/88)
Medicinal Implants**
- --------------------------------------------------------------------------------------
United States 4,892,734 3/30/88 Dispensing Paste for Issued (1/9/90)
Forming Medicinal
Pellets**
- --------------------------------------------------------------------------------------
[ * ]
- --------------------------------------------------------------------------------------
Austria E109941 4/4/88 Product Claims for Issued (8/17/94)
Flash Flow Fused
Medicinal Implants
- --------------------------------------------------------------------------------------
Belgium 357644 4/4/88 Product Claims for Issued (8/17/94)
Flash Flow Fused
Medicinal Implants
- --------------------------------------------------------------------------------------
Canada 1330939 4/5/88 Flash Flow Fused Issued (7/26/94)
Medicinal Implants
- --------------------------------------------------------------------------------------
Canada 1330940 4/5/88 Dispensing Paste for Issued (7/26/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Switzerland 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Gernmany 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
France 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Italy 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Netherlands 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Sweden 357644 4/4/88 Dispensing Paste for Issued (8/17/94)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
Norway 178783 4/4/88 Dispensing Paste for Issued (6/5/96)
Forming Medicinal
Implants
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
[*]
* Confidential treatment has been requested for marked portion
<PAGE>
SCHEDULE C
INSTRUMENTS, CONTRACTS, LEASES, LICENCES,
RIGHTS OR OTHER AGREEMENTS RELATING TO THE
TECHNOLOGY, THE PRODUCT RIGHTS, THE PRODUCTS
OR THE PURCHASED RIGHTS
1. The Athena Agreement.
2. The Endocon Agreement.
3. Patent License Agreement with Research Component made the 15th day of
December, 1993 and revised and restated on the 15th day of October, 1996
between the University of Florida Research Foundation, Inc. and Apollo.
4. Corporate Research Agreement to Accompany License Agreement entered into the
15th day of December, 1993 between Apollo and the University of Florida and
Participation Agreements of various dates made pursuant thereto and executed
by James W. Simpkins, Marzahan Singh, Jean Bishop and each participant in
the Sponsored Activity (as defined therein).
<PAGE>
SCHEDULE D
TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
(a) EXERCISE The Conversion Right may be exercised by the Fund at any time in
whole or from time to time in part, in accordance with and subject to the
provisions hereof up to 5:00 p.m. (Massachusetts time) on the final day of
the Term (the "Time of Expiry"). If the Conversion Right has not been
exercised by the Time of Expiry, all rights thereunder shall wholly cease
and terminate and shall be void and of no value or effect. The Conversion
Right may be exercised by surrendering to Apollo at its address for notice,
at any time after the date hereof up to the Time of Expiry, a Subscription
Form, substantially in the form attached hereto as Schedule 1, duly
completed and executed.
(b) PARTIAL EXERCISE The Fund may subscribe for and have issued to it a number
of Apollo Common Shares less than the total number it is entitled to
pursuant to the Conversion Right provided that it subscribes for a minimum
of US$ 150,000 of Apollo Common Shares each time. Partial exercises of the
Conversion Right shall be recorded by the Fund on the grid attached to the
Subscription Form as Appendix 1. the grid shall be initialed by the
Parties and form part of the Subscription Form. The grid, as so initialed,
shall, in the absence of manifest error, constitute conclusive proof of the
dates, amounts, numbers, information and factors set out therein.
(c) SHARE CERTIFICATES Within ten (10) Business Days after the delivery of a
duly completed and executed Subscription Form by the Fund (the "Exercise
Date"), Apollo shall issue and deliver to the Fund's address for notice,
registered in such name or names as the Fund may direct or if no such
direction has been given, in the name of the Fund, a certificate or
certificates representing the number of Apollo Common Shares issuable under
the Conversion Right as a result of the delivery of the Subscription Form.
Such exercise shall be deemed to have been effected as of the close of
business on the Exercise Date and at such time the rights of the Fund with
respect to the portion of the Conversion Right which has been exercised as
such shall cease, and the person or persons in whose name or names any
certificate or certificates for Apollo Common Shares shall then be issuable
upon such exercise or deemed exercise shall be deemed to have become the
holder or holders of record of the Apollo Common Shares represented
thereby.
(d) CONVERSION RATE Subject to the aggregate limits set out in Article 5, the
Fund may convert any portion of the Purchase Price from time to time. The
Fund shall not be bound to first convert all of the portion of the
<PAGE>
-2-
Purchase Price at the conversion rate set out in Section 5.1(a)
before it shall be entitled to convert any of the portion at the
conversion rate set out in Section 5.1(b), and vice versa.
(e) FRACTIONAL SHARES No fractional shares shall be issued upon any whole or
partial exercise of the Conversion Right.
(f) CORPORATE CHANGES If Apollo shall be a party to any reorganization,
merger, amalgamation, dissolution, sale of all or substantially all of its
assets, change or reclassification of its outstanding shares (an "Event"),
whether or not Apollo is the surviving entity, the Conversion Right shall
apply to the securities to which a holder of Apollo Common Shares
immediately prior to the Event would have been entitled by reason of such
Event. If the number of securities outstanding following an Event is
greater than the number of Apollo Common Shares immediately prior to the
Event, then the conversion rates per share expressed in United States
dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect
immediately prior to such Event shall be reduced by the reciprocal of the
multiple required to be used to arrive at the new number of securities. If
the number of securities outstanding following an Event is less than the
number of Apollo Common Shares immediately prior to the Event, then the
conversion rate per share expressed in United States dollars in Sections
5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such
Event shall be increased by the reciprocal of the fraction required to be
used to arrive at the new number of securities.
(g) SUBDIVISION OR CONSOLIDATION OF SHARES In the event Apollo shall subdivide
its outstanding Apollo Common Shares into a greater number of Apollo Common
Shares, the conversion rate per share expressed in United States Dollars in
Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior
to such subdivision shall be reduced by the reciprocal of the multiple used
to arrive at the new number of Apollo Common Shares. Conversely, in the
event Apollo shall consolidate its outstanding Apollo Common Shares into a
lesser number of Apollo Common Shares, the conversion rate per share
expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the
Agreement in effect immediately prior to such consolidation shall be
increased by the reciprocal of the fraction used to arrive at the new
number of Apollo Common Shares.
(h) STOCK DIVIDENDS OR DISTRIBUTIONS In the event Apollo: (i) issues Apollo
Common Shares or securities exchangeable for or convertible into Common
Shares to all or substantial of the holders of the Apollo Common Shares as
a stock dividend; or (ii) makes a distribution on its outstanding Apollo
Common Shares payable in Apollo Common
<PAGE>
-3-
Shares or securities exchangeable for or convertible into Apollo Common
Shares, the conversion rate per share expressed in United States dollars
in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately
prior to such stock dividend or distribution shall be reduced by the
reciprocal of the multiple used to arrive at the new number of Apollo
Common Shares (on a fully diluted basis).
(i) OTHER DISTRIBUTIONS In the event Apollo makes a distribution (a
"Distribution") on its outstanding Apollo Common Shares payable in (i) the
shares of Apollo of any class other than Apollo Common Shares; (ii) rights,
options or warrants to acquire shares or securities exchangeable for or
convertible into shares or property or other assets of Apollo; (iii)
evidence of indebtedness; or (iv) any property or other assets of Apollo,
the conversion rate expressed in United States dollars in Sections
5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such
Distribution shall be reduced by a fraction that is equal to the ratio of
the aggregate fair market value of Apollo immediately following the
Distribution to the fair market value immediately prior to the
Distribution;
(j) NOTICE OF ADJUSTMENT Upon any adjustment of the conversion rate expressed
in United States dollars in Section 5.1(a)(i) and (b)(i) of the Agreement
then and in each case Apollo shall give written notice thereof to the Fund,
which notice shall state the conversion rates resulting from such
adjustment, and shall upon receipt of the written request of the Fund set
forth in reasonable detail the method of calculation and the facts upon
which such calculation in based.
(k) ADJUSTMENTS CUMULATIVE The adjustments provided for herein are cumulative
and will: (i) be computed to the nearest one-tenth of one cent; and (ii) be
made successively whenever an event referred to herein occurs.
(l) FINANCINGS In the event Apollo completes a Financing as a result of which
Apollo issues securities convertible into or exchangeable for Apollo Common
Shares, the price per share at which Apollo Common Shares were issued shall
be, for the purposes of Sections 5.1(a)(ii) and (b)(ii) of the Agreement,
the lowest of: (i) the imputed price per share on a fully diluted basis;
(ii) the unit price less an amount equal to the price per option or warrant
of any options or warrants which, together with Apollo Common Shares, form
part of the Unit determined by applying the Black Scholes pricing model;
and (iii) the lowest exercise price or conversion or exchange rate at which
any securities issued by Apollo pursuant to the relevant Financing may be
convertible into or exchangeable for Apollo Common Shares.
<PAGE>
SCHEDULE 1
Subscription Form
TO: APOLLO GENETICS, INC. (the "Company")
RE: Exercise of Conversion Right pursuant to a Royalty Purchase Agreement dated
December 18, 1996 between Neuroscience Partners Limited Partnership and the
Company (the "Agreement").
The undersigned hereby irrevocably elects to exercise its Conversion Right with
respect to U.S.$_____________________ of the // $.875 // $1.05 [CHECK ONE]
Purchase Price portion and hereby subscribes for ______________ Apollo Common
Shares (or other property or securities contemplated by the Conversion Right).
DATED this day of , .
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER,
MDS ASSOCIES-NEUROSCIENCE INC.
By:______________________________________
Name:
Title:
Effective upon receipt of a certificate or certificates representing the
number of Apollo Common Shares set out herein in accordance with the
registration and delivery instructions set out below (the "Effective Date"),
the undersigned hereby automatically waives its right to receive the portion
of the future Royalties which accrue from and after the Effective Date set
out in the column titled "Portion of Royalties Waived", and acknowledges and
agrees that the rates set out in items (i) and (ii) of the Purchased Rights
shall, from the Effective Date, be the rates set out in the columns "Future
Direct Sales Royalty Rate" and "Future Fees and Income Royalty Rate",
respectively. The undersigned further acknowledges and agrees that the
amounts set out in Section 2.3 of the Agreement shall, from the Effective
Date, be equal to the amount actually set out in the Agreement multiplied by
the percentage set out in the column, "Termination Buy-out Amount Factor".
Defined terms not otherwise defined herein shall have the meaning assigned
thereto in the Agreement.
DIRECTION AS TO REGISTRATION (if different from the Fund at its address for
notice in the Agreement)
Name of Registered Holder: ______________________________________
Address of Registered Holder: ______________________________________
______________________________________
DIRECTIONS AS TO DELIVERY (if different from the Fund at its address for notice
in the Agreement)
Address of Delivery ______________________________________
______________________________________
Attention: __________________________
<PAGE>
APPENDIX 1
GRID
CUMULATIVE RECORD OF CONVERSIONS UNDER THE CONVERSION RIGHT
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
DATE OF PORTION OF BALANCE OF PORTION OF BALANCE OF BASIS OF NO. OF PORTION OF FUTURE FUTURE TERMINATION/
EXERCISE $.875 $.875 $1.05 $1.05 CONVER- APOLLO ROYALTIES DIRECT FEES AND BUY-OUT
OF CON- PURCHASE PURCHASE PURCHASE PURCHASE SION COMMON WAIVED(1) SALES INCOME AMOUNT
VERSION PRICE PRICE TO BE PRICE PRICE TO BE SHARES TO ROYALTY ROYALTY FACTOR(4)
RIGHT CONVERTED CONVERTED CONVERSION CONVERTED BE ISSUED RATE(2) RATE(3)
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
</TABLE>
_____________________
1 The Portion of Royalties waived is equal to the cumulative percent of the
total Purchase Price which has been converted.
2 Future Direct Sales Royalty Rate is equal to the Portion of Royalties
Waived multiplied by 2%.
3 Future Fees and Income Royalty Rate is equal to the Portion of Royalties
Waived multiplied by 5%.
4 The revised amounts set out in Sections 2.3 and 2.4 for each year are equal
to the amount actually set out in the Agreement multiplied by the
percentage set out in this column.
<PAGE>
SCHEDULE E
SUBSCRIPTION AGREEMENT
TO: APOLLO GENETICS, INC. (the "Corporation")
Neuroscience Partners Limited Partnership (the "Subscriber") hereby subscribes
for and offers to purchase, subject to the terms and conditions set out herein,
714,290 shares of common stock, US$.02 par value per share (each, a "Common
Share", collectively, the "Purchased Shares").
The Purchased Shares are being purchased pursuant to a Royalty Purchase
Agreement between the Subscriber and the Corporation dated the date hereof (the
"Purchase Agreement"). In the event of any conflict or inconsistency between
the provisions of this Agreement and the provisions of the Purchase Agreement,
the Purchase Agreement shall govern.
1. SUBSCRIPTION PRICE
The aggregate subscription price (the "Subscription Price") for the Purchased
Shares is US$500,000 or approximately US$.7 per Common Share.
2. CLOSING
The delivery of and payment for the Purchased Shares will be completed (the
"Closing") on December 17, 1996, or at such other time or on such other date as
the Corporation and the Subscriber may agree (such time and date being herein
referred to respectively as the "Time of Closing" and the "Closing Date").
The Subscriber hereby agrees to deliver to the Corporation at the Closing the
following documents:
(i) a certified cheque, bank draft or wire transfer made payable to
"Apollo Genetics, Inc." or such other person as the Corporation may
direct representing the Subscription Price;
(ii) an executed copy of this subscription agreement; and
(iii) such other documents and instruments as the Corporation may
reasonably require to give effect to and carry out the transactions
contemplated herein.
<PAGE>
- 2 -
The Corporation hereby agrees to deliver to the Subscriber at the Closing the
following documents:
(i) a single certificate representing the Purchased Shares registered in
accordance with the registration instructions set out in section 10;
(ii) an executed copy of this subscription agreement;
(iii) an opinion of its counsel in a form reasonably satisfactory to the
Subscriber; and
(iv) such other documents and instruments as the Corporation may
reasonably require to give effect to and carry out the transactions
contemplated herein.
3. REPRESENTATIONS, WARRANTIES, ETC. OF THE SUBSCRIBER
The Subscriber hereby represents and warrants to the Corporation (which
representations and warranties shall survive closing and continue in full force
and effect for a period of three years from the date hereof) and acknowledges
that the representations of the Subscriber made in Section 3.2 of the Purchase
Agreement are true and correct as if made pursuant hereto. The Subscriber
acknowledges that the Corporation is relying on those representations and
warranties in entering into this Subscription Agreement:
4. REPRESENTATIONS, WARRANTIES, ETC. OF THE CORPORATION
By its acceptance of this subscription agreement, the Corporation represents and
warrants to the Subscriber (which representations and warranties shall survive
closing and continue in full force and effect for a period of three years from
the date hereof) and acknowledges that the representations of the Corporation
made in Section 3.1 of the Purchase Agreement are true and correct as if made
pursuant hereto. The Corporation acknowledges that the Subscriber is relying on
those representations and warranties in entering into this subscription
agreement:
5. GOVERNING LAW
This subscription agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. The Corporation and the
Subscriber hereby irrevocably attorn to the non-exclusive jurisdiction of the
courts of the Commonwealth of Massachusetts with respect to any matters arising
out of this subscription agreement.
6. ASSIGNMENT
This subscription agreement is not transferable or assignable by the parties
hereto.
<PAGE>
- 3 -
7. ENTIRE AGREEMENT
This subscription agreement contains the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.
8. TIME OF ESSENCE
Time shall be of the essence of this subscription agreement.
9. HEADINGS
The headings contained herein are for convenience only and shall not affect the
meaning or interpretation of this subscription agreement.
10. DETAILS OF REGISTRATION AND DELIVERY
A. Name of Subscriber: Neuroscience Partners Limited Partnership
Street Address: 100 International Blvd.
City and Province: Etobicoke, Ontario
Postal Code: M9W 6J6
Contact: Michael Callaghan
Phone No.: 416-213-4228
Fax No.: 416-213-4232
B. Registration of the certificate representing the Common Shares, each of the
Warrants and the Common Shares issuable on exercise of the Warrants should
be made as follows:
Name: Neuroscience Partners Limited Partnership
Registration Address: 100 International Boulevard
City and Province: Etobicoke, Ontario
Postal Code: M9W 6J6
<PAGE>
- 4 -
11. SIGNATURE OF SUBSCRIBER
DATED as of the 18th day of December, 1996.
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
by its General Partner
MDS ASSOCIES-NEUROSCIENCE INC.
Per: /s/ Michael J. Callaghan, Vice-President
-----------------------------------------
Michael J. Callaghan, Vice-President
Per: /s/ Keith Dorrington, Vice-President
----------------------------------------
Keith Dorrington, Vice-President
12. CONFIRMATION AND ACCEPTANCE
This subscription agreement is confirmed and accepted by the Corporation.
DATED as of the 18th day of December, 1996.
APOLLO GENETICS, INC.
Per:
-----------------------------------------
<PAGE>
SCHEDULE F
REGISTRATION RIGHTS AGREEMENT
See Exhibit 3.3 to this Registration Statement
<PAGE>
Schedule G
FINANCIAL STATEMENTS
APOLLO GENETICS, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
- I N D E X -
-------------
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Apollo Genetics, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheet of Apollo Genetics, Inc.
(a development stage company) as at December 31, 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period then ended, and for the period from
July 9, 1992 (inception) through December 31, 1995. These financial
statements are the 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 enumerated above present
fairly, in all material respects, the financial position of Apollo Genetics,
Inc. at December 31 1995, and the results of its operations and its cash
flows for the each of the years in the two-year period then ended, and for
the period from July 9, 1992 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying condensed balance sheet of Apollo Genetics, Inc. as at
September 30, 1996 and the related condensed statements of operations and cash
flows for the nine-month periods ended September 30, 1996 and 1995 and the
period from July 9, 1992 (inception) through September 30, 1996 were not
audited by us and, accordingly, we do not express an opinion on them.
/s/ Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
July 15, 1996
With respect to Notes A and E
November 6, 1996
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
BALANCE SHEETS
December 31, September 30,
A S S E T S 1995 1996
----------- ------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . $ 246,721 $ 373,645
Stock subscriptions receivable (Note C) . . 112,500
------------ -------------
Total current assets . . . . . . . . 246,721 486,145
Organization costs, net of accumulated
amortization of $3,584 at December 31,
1995 and $4,371 at September 30, 1996
(Note B). . . . . . . . . . . . . . . . . . 1,661 874
Deferred public offering costs . . . . . . . . 5,000
------------ -------------
T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
Current liabilities:
Accounts payable and accrued expenses . . . $ 161,923 $ 102,981
Notes payable (Note D). . . . . . . . . . . 73,425
------------ -------------
Total current liabilities. . . . . . 161,923 176,406
------------ -------------
Notes payable (Note D) . . . . . . . . . . . . 204,400
------------
Commitments (Note F)
Stockholders' equity (deficit) (Note E):
Preferred stock - $.01 par value;
4,000,000 shares authorized, none
issued
Common stock - $.02 par value; 20,000,000
shares authorized, 11,770,000 shares
issued at December 31, 1995 and
13,017,843 shares issued at
September 30, 1996. . . . . . . . . . . . 235,400 260,357
Additional paid-in capital. . . . . . . . . 994,120 1,625,629
Deficit accumulated during the
development stage . . . . . . . . . . . . (1,347,461) (1,570,373)
------------ -------------
Total stockholders' equity
(deficit) . . . . . . . . . . . . . (117,941) 315,613
------------ -------------
T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019
------------ -------------
------------ -------------
Attention is directed to the foregoing auditor's report and to the
accompanying notes to financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
July 9, 1992 July 9, 1992
Year Ended (Inception) Nine Months Ended (Inception)
December 31, Through September 30, Through
---------------------- December 31, --------------------- September 30,
1995 1994 1995 1996 1995 1996
---------- ---------- ------------- ---------- ---------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Licensing and option revenue
(Note B(2)) . . . . . . . . . . . . $ 170,000 $ 170,000
Interest income . . . . . . . . . . . $ 2,535 $ 3,954 $ 12,071 7,301 19,372
---------- ---------- ------------- ---------- -------------
$ 2,535 $ 3,954 $ 12,071 177,301 189,372
---------- ---------- ------------- ---------- -------- -------------
Expenses:
Research and development. . . . . . . 131,842 199,654 466,838 100,716 $ 94,966 567,554
General and administrative. . . . . . 230,592 323,613 857,909 268,819 187,462 1,126,728
Amortization expense. . . . . . . . . 1,049 1,049 3,584 787 787 4,371
Interest expense. . . . . . . . . . . 31,201 2,645 31,201 29,891 22,691 61,092
---------- ---------- ------------- ---------- ---------- -------------
Total expenses . . . . . . . . 394,684 526,961 1,359,532 400,213 305,906 1,759,745
---------- ---------- ------------- ---------- ---------- -------------
NET LOSS . . . . . . . . . . . . . . . . $(392,149) $(523,007) $ (1,347,461) $(222,912) $(305,906) $(1,570,373)
---------- ---------- ------------- ---------- ---------- -------------
---------- ---------- ------------- ---------- ---------- -------------
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements.
</TABLE>
- 3 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Common Stock
$ .92 Per Value Additional
------------------------ Paid-in
Shares Amount Capital
-------- -------- ----------
<S> <C> <C> <C>
Issuance of common stock at $.02 per share from inception
through December 31, 1992. . . . . . . . . . . . . . . . . . . . 2,050,000 $ 41,000
Issuance of common stock for services at $.02 per share
from inception through December 31, 1992 . . . . . . . . . . . . 200,000 4,000
Net loss for the year ended December 31, 1992. . . . . . . . . . .
--------- --------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . 2,250,000 45,000
Additional shares sold at $ .02 per share . . . . . . . . . . . . 4,000,000 80,000
Shares issued for services at $ .02 per share. . . . . . . . . . . 540,000 10,800
State of common stock in connection with private placement
of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 3,200,000 64,000 $ 576,000
Costs related to private placement . . . . . . . . . . . . . . . . (36,530)
Shares issued for services at $ .20 per share . . . . . . . . . . 30,000 600 5,400
Net loss for the year ended December 31, 1993. . . . . . . . . . .
--------- -------- ----------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . 10,020,000 200,400 544,870
Repurchase of common stock by the Company and cancellation
of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,300) (1,000)
Common stock warrants issued in connection with notes payable . . 6,750
Net loss for the year ended December 31, 1994 . . . . . . . . . .
---------- -------- ----------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . 9,970,000 199,400 551,620
Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 1,800,000 36,000 414,000
Costs of raising capital . . . . . . . . . . . . . . . . . . . . (12,250)
Purchase (for $8,000) and resale (for $20,000) of 200,000
shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000
Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000
Common stock warrants issued in connection with notes payable. . . 3,750
Net loss for the year ended December 31, 1995. . . . . . . . . . .
---------- -------- ----------
Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . 11,770,000 235,400 994,120
Shares issued for services at $ .30 per share. . . . . . . . . . . 83,552 1,471 23,395
Conversion of debt into common stock . . . . . . . . . . . . . . . 450,003 9,000 122,400
Sale of common stock in connection with private placement
of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 714,291 14,286 485,714
Net loss for the nine months ended September 30, 1994. . . . . . .
---------- -------- ----------
BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . 13,017,843 $ 260,357 $ 1,625,629
---------- --------- -----------
---------- --------- -----------
Deficit
Accumlated
During
Developememt
Stage Total
------------ ---------
Issuance of common stock at $.02 per share from inception
through December 31, 1992. . . . . . . . . . . . . . . . . . . . $ 41,000
Issuance of common stock for services at $.02 per share
from inception through December 31, 1992 . . . . . . . . . . . . 4,000
Net loss for the year ended December 31, 1992. . . . . . . . . . . $ (77,972) (77,972)
----------- --------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . (77,972) (32,972)
Additional shares sold at $ .02 per share . . . . . . . . . . . . 80,000
Shares issued for services at $ .02 per share. . . . . . . . . . . 10,800
State of common stock in connection with private placement
of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 640,000
Costs related to private placement . . . . . . . . . . . . . . . . (36,530)
Shares issued for services at $ .20 per share . . . . . . . . . . 6,000
Net loss for the year ended December 31, 1993. . . . . . . . . . . (354,333) (354,333)
----------- --------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . (432,305) 312,965
Repurchase of common stock by the Company and cancellation
of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000)
Common stock warrants issued in connection with notes payable . . 4,750
Net loss for the year ended December 31, 1994 . . . . . . . . . . (523,007) (523,007)
----------- --------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . (955,312) (204,292)
Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 450,000
Costs of raising capital . . . . . . . . . . . . . . . . . . . . . (12,250)
Purchase (for $8,000) and resale (for $20,000) of 200,000
shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000
Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000
Common stock warrants issued in connection with notes payable. . . 3,750
Net loss for the year ended December 31, 1995. . . . . . . . . . . (392,141) (392,149)
----------- --------
Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . (1,347,461) (117,941)
Shares issued for services at $ .30 per share. . . . . . . . . . . 25,066
Conversion of debt into common stock . . . . . . . . . . . . . . . 131,400
Sale of common stock in connection with private placement
of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 500,000
Net loss for the nine months ended September 30, 1994. . . . . . . (222,912) (222,912)
----------- --------
BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . $(1,570,373) $ 315,613
----------- --------
----------- --------
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
-4-
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 9, 1992 July 9, 1992
Year Ended (Inception) Nine Months Ended (Inception)
December 31, Through September 30, Through
-------------------- December 31, -------------------- September 30,
1995 1994 1995 1996 1995 1996
--------- --------- --------------- --------- --------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(392,149) $(523,007) $ (1,347,467) $(222,912) $(305,906) $ (1,570,373)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization.................................. 1,049 1,399 3,934 1,212 786 5,146
Common stock issued for services rendered..... 20,800 25,066 45,866
Organization costs............................ (5,245) (5,245)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and
accrued expenses........................... 138,971 56,643 216,473 (58,942) 130,697 157,531
--------- --------- --------------- --------- --------- ---------------
Net cash (used in) operating activities... (253,029) (484,965) (1,111,499) (255,576) (174,423) (1,367,075)
--------- --------- --------------- --------- --------- ---------------
Cash liens from financing activities:
Sale of common stock............................ 445,000 1,206,000 387,00 121,000 1,593,500
Stock offering costs............................ (12,250) (48,780) (48,780)
Repurchase of common stock...................... (8,000) (1,000) (9,000) (9,000)
Proceeds from notes payable (Note C)............ 75,000 135,000 210,000 75,000 210,000
Deferred public offering costs.................. (5,000) (5,000)
--------- --------- --------------- --------- --------- ---------------
Net cash provided by financing
activities............................... 499,750 134,000 1,358,220 382,500 196,000 1,740,729
--------- --------- --------------- --------- --------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 246,721 (330,965) 246,721 126,926 21,577 373,645
Cash and cash equivalents at beginning of
period........................................... -0- 330,965 -0- 246,721 -0- -0-
--------- --------- --------------- --------- --------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 246,721 $ -0- $ 246,721 $ 373,845 $ 21,577 $ 373,645
--------- --------- --------------- --------- --------- ---------------
--------- --------- --------------- --------- --------- ---------------
Supplemental disclosures of cash flow information:
Interest paid................................... $ 15,000 $ 15,000 $ 25,00 $ 32,000
Accounts payable converted into stock........... 25,000 25,000 25,000
Capital contributed by forgiveness of debt...... 25,000 25,000 25,000
Notes payable converted to common stock......... 135,000 135,000
</TABLE>
Attention is directed to the foregoing auditors' report and
as the accompanying notes to financial statements.
-5-
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE A) - THE COMPANY:
Apollo Genetics, Inc. (the "Company"), was incorporated on July 9, 1992.
The Company's objective is to develop biopharmaceutical products for
deterring aspects of human aging.
The Company is in the development stage and its efforts through December
31, 1995 have been principally devoted to organizational activities, raising
capital and initial research and development activities. It does not expect
commercial operations in the foreseeable future. The Company anticipates that
it will need substantial additional financing to complete its research and to
develop commercial products. The Company is endeavoring to obtain additional
financing for the next phase of its research activities; however, there is no
assurance that such financing can be obtained or that the Company's research
will be successful.
On November 6, 1996 the Board of Directors of the Company authorized the
filing of a registration statement with the Securities and Exchange Commission
for the initial public offering of shares of the Company's common stock.
(NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) ORGANIZATION COSTS:
The Company has capitalized certain costs, primarily legal expenses,
related to its organization. These costs are being amortized by the
straight-line method over five years.
(2) PATENT COSTS:
Patent costs will be amortized over the estimated useful lives of
the underlying patents commencing with the date when revenue is earned
related to the patents.
(3) 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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(continued)
- 6 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
(4) CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity
of three months or less, when acquired, to be cash equivalents.
(5) INTERIM CONDENSED FINANCIAL STATEMENTS:
The condensed financial statements as of September 30, 1996 and for
the nine months ended September 30, 1996 and September 30, 1995 are
unaudited. In management's opinion, the unaudited financial statements as of
September 30, 1996 and for the nine months ended September 30, 1996 and
September 30, 1995, include all adjustments necessary for a fair
presentation. Such adjustments were of a recurring nature.
(NOTE C) - STOCK SUBSCRIPTIONS RECEIVABLE:
All stock subscriptions receivable were paid in full in October 1996.
(NOTE D) - NOTES PAYABLE:
During the 1995 and 1994, the Company issued $210,000 of 10% convertible
notes payable. The notes are due in full at the earlier of September 19, 1997
or the closing of the next offering of common stock of the Company with
aggregate gross proceeds to the Company of not less than $1,000,000. Interest
is payable annually on September 19. The notes may be redeemed at the option
of the Company at a price equal to 110% of the principal amount plus any
accrued and unpaid interest. The notes may be converted into common stock of
the Company at any time prior to the redemption or maturity date. The
conversion price is subject to adjustment as defined in the agreement. The
principal amount of the notes outstanding is $75,000 and $210,000 at
September 30, 1996 and December 31, 1995, respectively. In
- 7 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE D) - NOTES PAYABLE: (continued)
conjunction with these notes, the Company issued warrants for the purchase of
700,000 shares of its common stock. The value assigned to the warrants,
amounting to $10,500, has been accounted for as debt discount and is being
amortized over the period of time the notes are expected to be outstanding.
The effective interest rate on the notes, including the debt discount, is
approximately 12%. The warrants are more fully discussed in Note E(3).
Through September 30, 1996 a total of $135,000 of the notes were converted
into 450,000 shares of common stock.
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS:
[1] COMMON STOCK:
Through December 31, 1995, the Company has been financed primarily
through the sale of common stock. Through December 31, 1995, of the
11,770,000 shares issued, 11,000,000 were sold for cash and the remaining
770,000 shares were issued for payment of services rendered to the Company.
Through September 30, 1996, of the 13,017,843 shares issued, 12,164,291 were
sold for cash and the remaining 853,552 shares were issued for payment of
services rendered to the Company.
[2] OPTION PLAN:
The Company has a stock option plan that provides for the issuance
of both incentive and nonqualified stock options. This plan provides for the
granting of options to purchase not more than 1,000,000 shares of common
stock. The exercise price of the incentive options cannot be less than the
fair market value on the date of the grant, while the exercise price for the
nonqualified options is determined by the option committee.
(continued)
- 8 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued)
[2] OPTION PLAN: (continued)
Option activity through September 30, 1996 has been as follows:
Number of Option Price
Shares Per Share
--------- ------------
Balance - December 31, 1992 -0- $-0-
Granted 200,000 $.20
-------
Balance - December 31, 1993 200,000 $.20
Granted 500,000 $.20 - $.30
-------
Balance - December 31, 1994 700,000 $.20 - $.30
Cancelled (300,000) $.20 - $.30
Granted 600,000 $.10 - $.25
-------
Balance - December 31, 1995 and
September 30, 1996 1,000,000 $.10 - $.30
At September 30, 1996, options to purchase 650,000 shares were
exercisable at an average exercise price of $.26 per share. At September 30,
1996, no options to purchase shares were available for grant under the plan.
In November of 1996, the Company's Board of Directors authorized an
increase of the number of shares of the Company's common stock issuable under
the plan by 1,000,000 shares.
Also in November of 1996, the Company's Board of Directors
authorized the establishment of the 1996 Directors Stock Option Plan, and
reserved 300,000 shares of the Company's common stock for issuance under the
Plan
(continued)
9
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued)
[3] WARRANTS:
In conjunction with the notes described in Note C, the Company issued
warrants for the purchase of 700,000 shares of the Company's common stock.
The warrants are exercisable until September 17, 1999 at the lower of $.30
per share or the price per share of the common stock at the closing of the
next offering of common stock with aggregate gross proceeds of at least
$1,000,000. The number and character of shares which may be purchased upon
the exercise of these warrants are subject to adjustment as provided in the
warrant agreement.
(NOTE F) - COMMITMENTS:
[1] LEASE:
The Company is currently subleasing its facilities under a
tenant-at-will agreement. Rent expense for the year ended December 31, 1995
amounted to $5,850 and the rent paid since inception is $21,100.
[2] RESEARCH, LICENSE AND CONSULTING AGREEMENTS:
The Company has entered into various research, license and
consulting agreements to support its research and development activities.
These agreements generally expire over several future years. Amounts charged
to operations in connection with these agreements for the year ended December
31, 1995 amounted to approximately $55,000. The Company expects to increase
its research and development expenses in future years.
Some of the above agreements contain provisions for future royalties
to be paid by the Company on the sale of products developed under the
agreements.
[3] EMPLOYMENT AGREEMENT:
The Company has entered into an employment agreement, which expires
on October 31, 1997, with its president which provides for a minimum annual
salary of $100,000 and twelve months of severance pay. The agreement will
automatically extend for a one-year period through October 31, 1998 unless
terminated by either party to the agreement.
(continued)
10
<PAGE>
SCHEDULE H
GRANTS AND OPTIONS
1. The Neurestrol License Option granted pursuant to Section 3.3 of the
Athena Agreement.
<PAGE>
LICENSE, RESEARCH AND COLLABORATION AGREEMENT
This License, Research and Collaboration Agreement is entered into as of
the 13th day of December, 1996 by and between Apollo Genetics, Inc., a Delaware
corporation ("Apollo"), and Endocon, Inc., a Maryland corporation ("Endocon").
WHEREAS, Apollo has certain intellectual property rights in the form of an
issued U.S. Patent and various pending patent applications dealing with the use
of certain estrogen compounds for neuroprotection; and
WHEREAS, Endocon owns intellectual property rights under certain issued
U.S. Patents and various pending patent applications dealing with products and
processes in the field of controlled-release drug delivery, especially
bioerodible subcutaneous implants for use with steroidal compounds;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
When used herein, the following words shall have the following meanings:
(a) "Affiliate" shall mean any individual, trust, business trust, joint
venture, partnership, corporation, division of a corporation, association or any
other entity that (directly or indirectly) is controlled by, controls or is
under common control with a party to this Agreement. For purposes of this
definition, the term "control" shall mean the possession (directly or
indirectly) of the power to direct or cause the direction of the management or
policies of such party.
(b) "Apollo Proprietary Technology" shall mean all inventions, biological
or biochemical materials, works of authorship, technical information, know-how,
and data, which is applicable to the Field, in existence on the date of this
Agreement and owned by, licensed to or known to Apollo or an Affiliate of Apollo
and with respect to which Apollo has the right to disclose and use in connection
with this Agreement, now or in the future, including all rights of Apollo under
the patents and patent applications set forth on Exhibit A hereto.
(c) "Commercialize" or "Commercialization" shall mean registration,
regulatory approval, marketing, distribution and sale of the Products.
(d) "Endocon Proprietary Technology" shall mean all inventions, biological
or biochemical materials, works of authorship, technical information, know-how,
and data, which is applicable to the Field, in existence on the date of this
Agreement and owned by, licensed to or known to Endocon or an Affiliate of
Endocon and with respect to which Endocon has the right to disclose and use in
connection with this Agreement, now or in the future, including all rights of
Endocon under the patents and patent applications set forth on Exhibit B hereto.
<PAGE>
(e) "Field" shall mean Formulations for the treatment of Neurodegenerative
Diseases.
(f) "Formulation" shall mean estradiol or other estrogen compounds in a
subdermal implant employing Endocon Proprietary Technology.
(g) "Improvements" shall mean any improvements or developments, within the
Field, upon any of the Proprietary Technology that Endocon (or an Affiliate of
Endocon) or Apollo (or an Affiliate of Apollo), either solely or jointly with
any third party that is not an Affiliate of the other party, may acquire,
discover, invent, originate, make, conceive or have a right to, in whole or in
part, during the term of this Agreement, whether or not such improvement or
development is patentable, commercially useful or reducible to writing or
practice. "Endocon Improvements" shall mean any Improvements acquired,
discovered, invented, originated, made or conceived by Endocon (or an Affiliate
of Endocon) or to which Endocon (or an Affiliate of Endocon) has a right, either
solely or jointly with any third party that is not an Affiliate of Apollo, with
respect to which Endocon has the right to disclose and use in connection with
this Agreement. "Apollo Improvements" shall mean any Improvements acquired,
discovered, invented, originated, made or conceived by Apollo (or an Affiliate
of Apollo) or to which Apollo (or an Affiliate of Apollo) has a right, either
solely or jointly with any third party that is not an Affiliate of Endocon, with
respect to which Apollo has the rights to disclose and use in connection with
this Agreement. "Joint Improvements" shall mean any improvements or developments
in the Field upon any of the Proprietary Technology, which Endocon (or an
Affiliate of Endocon) and Apollo (or an Affiliate of Apollo) jointly acquire,
discover, invent, originate, make, conceive or have a right to during the term
of this Agreement, whether or not such improvement or development is patentable,
commercially useful or reducible to writing or practice.
(h) "Net Proceeds" shall mean the aggregate amount of proceeds (including,
without limitation, license fees, milestone payments and royalties) received
from third parties by Apollo and/or Endocon in connection with the development
of the Products and Commercialization, after deduction and reimbursement of
expenses previsously incurred by Apollo and/or Endocon in connection with the
development of the Products and Commercialization and not previously reimbursed.
(i) "Neurodegenerative Diseases" shall mean diseases caused or
characterized by the impairment of neurons, including, without limitation,
Alzheimer's disease, Huntington's disease and Parkinson's disease.
(j) "Proprietary Technology" shall mean any of the Apollo Proprietary
Technology and the Endocon Proprietary Technology.
2. COLLABORATION; LICENSE
From the date hereof, the parties agree to collaborate in the joint
development of Formulations in the Field (collectively, the "Products").
-2-
<PAGE>
Each of the parties hereby grants to the other party, under its present
and future intellectual property rights, an exclusive, worldwide, royalty-free
license to make and use the Products for research and development purposes only.
Endocon hereby further grants to Apollo an exclusive, worldwide, royalty-free
license to distribute for sale and sell the Products; provided, however that (i)
the parties agree, prior to Apollo's commercialization of any Products, to enter
into good faith negotiations regarding the alternative financial terms and
conditions of said license and further agree to negotiate license fee rates and
royalties which are fair and reasonable to both parties and (ii) Apollo hereby
agrees, in connection with the grant of such license, that Endocon shall have
the exclusive right to manufacture the Products. Subject to the foregoing,
Apollo shall have full power and authority under such license to negotiate
sublicensing agreements with third parties with respect to the Products and to
obtain financing from third parties to assist Commercialization.
3. MANAGEMENT OF COLLABORATION
The parties hereby create a committee (the "Research Committee"), which
shall consist of two (2) members, one of which shall be designated by Apollo and
one of which shall be designated by Endocon. If any member of the Research
Committee dies, resigns or becomes incapacitated, the party which designated
such member shall designate his or her successor (whose term shall commence
immediately), and any party may withdraw the designation of its member of the
Research Committee and designate a replacement (whose term shall commence
immediately) at any time by giving notice of the withdrawal and replacement to
the other party.
Pursuant to no less than 5 days' notice, meetings of the Research
Committee shall be held at such times and places as the members of the Research
Committee shall from time to time agree. In the event a Research Committee
member is unable to attend a meeting or wishes a scientific, business or other
expert to represent his or her party at such meeting, such Committee member may
designate an alternate member to serve in such member's stead, solely for such
Research Committee meeting.
All management of the contractual relationships created by this Agreement
shall be taken by the Research Committee, acting in accordance with this
Agreement, or by agents duly authorized in writing by the Research Committee.
Only a determination or other action agreed to by all of the members of the
Research Committee (or the designee or agent of all of the members) shall bind
the parties.
If the Research Committee fails to reach agreement upon any matter, either
party may request, upon fifteen (15) days' notice, that the dispute be resolved
in accordance with the procedures set forth in Section 10 below.
4. DEVELOPMENT COSTS; INTERESTS IN PROCEEDS
Each party shall bear the costs and expenses of its respective activities
in connection with the collaboration established hereby and shall promptly make
payments to third parties arising therefrom; provided, however, that neither
party has any obligation hereunder to finance development of the Products. The
parties anticipate that development costs will be
-3-
<PAGE>
borne primarily by a third party marketing partner under a license agreement
among such third party and the parties hereto.
All Net Proceeds received by either of the parties from the development of
the Products shall be allocated 60% to Apollo and 40% to Endocon. From time to
time, the Research Committee shall determine the amount of proceeds available
for distribution as Net Proceeds.
Notwithstanding the foregoing, the parties acknowledge that there may be
future events affecting the equitable distribution of Net Proceeds and agree
that they will act, by amendment of this Agreement if necessary, in a
commercially reasonable manner with respect to the division of Net Proceeds, the
establishment of manufacturing fees, the recovery of development costs and other
commercial terms hereof. If the parties fail to reach agreement upon any such
matter, either party may request, upon fifteen (15) days' notice, that the
dispute be resolved in accordance with the procedures set forth in Section 10
below.
5. TERMINATION; SURVIVING RIGHTS
The term of this Agreement shall be perpetual; provided, however, that
either party may terminate this Agreement upon sixty (60) days' notice to the
other party. Upon termination pursuant to this Section 5, the non-terminating
party shall receive from the terminating party an exclusive, worldwide,
royalty-free license (with the right to sublicense) to develop, make, have made,
use, distribute for sale and sell the Products.
6. CONFIDENTIAL INFORMATION; PUBLIC ANNOUNCEMENTS
The parties contemplate that, during the term of this Agreement, each
party (as such, a "Disclosing Party") will disclose to the other party (as such,
a "Receiving Party") Proprietary Technology of the Disclosing Party that is
marked or otherwise reasonably identifiable as such. A Receiving Party shall
hold in confidence and shall not, directly or indirectly, at any time during or
subsequent to the term of this Agreement, unless otherwise agreed to in writing
by the Disclosing Party, disclose, publish, transfer or use (other than in
accordance with the terms of this Agreement) any Proprietary Technology of the
Disclosing Party; provided, however, that the foregoing restrictions shall not
apply to any Proprietary Technology that:
(a) becomes part of the public domain through no wrongful act of the
Receiving Party;
(b) is lawfully received by the Receiving Party from a third party
without contravention of this Agreement;
(c) prior to the time of receiving such Proprietary Technology from
the Disclosing Party, is known by the Receiving Party and may
lawfully be used by it without restriction; or
-4-
<PAGE>
(d) is independently developed by the Receiving Party, provided that
the person or persons developing the same have not had any access to
the Disclosing Party's Proprietary Technology.
Proprietary Technology specific to the use of certain compounds, methods,
conditions or features shall not be deemed to be within the foregoing exceptions
merely because such Proprietary Technology is embraced by general disclosures in
the public domain or in the possession of the Receiving Party; in addition, a
combination of Proprietary Technology will not be deemed to fall within the
foregoing exceptions, even if all of the components fall within an exception,
unless the combination itself and its significance are in the public domain or
in the possession of the Receiving Party prior to the disclosure thereof by the
Disclosing Party.
Except as shall be necessary to comply with applicable laws and
regulations, and except as otherwise agreed to by the parties hereto, the
parties each agree to keep the existence of this Agreement, and the transactions
contemplated hereby, strictly confidential. Any press release or similar public
announcements regarding this Agreement or the transactions contemplated herein
shall be agreed upon in writing between the parties prior to publication.
7. PROPRIETARY MATERIALS
In the course of the collaboration established hereby, one party (the
"Provider") may transfer to the other party (the "Recipient") certain of its
materials that were developed by the Provider prior to or outside the
performance of this Agreement ("Proprietary Materials"). In such event, the
Recipient acknowledges and agrees that such Proprietary Materials are and shall
be owned by the Provider. The Recipient agrees to execute and deliver any
documents of assignment or conveyance to effectuate or document the ownership
rights of the Provider in such Proprietary Materials.
The Recipient further agrees to use Proprietary Materials provided by the
Provider sale for purposes set forth in this Agreement or a subsequent writing.
The Recipient shall use such Proprietary Materials only in compliance with all
applicable federal, state, and local laws and regulations.
The Recipient shall not distribute any Proprietary Materials to any third
party other than its employees who are working on the collaboration established
hereby.
8. RIGHTS TO IMPROVEMENTS
All right, title and interest in (i) all Apollo Improvements shall be
solely in Apollo, (ii) all Endocon Improvements shall be solely in Endocon and
(iii) all Joint Improvements shall be 50% in Apollo and 50% in Endocon.
-5-
<PAGE>
Each party shall use its best efforts to ensure that its employees,
consultants, agents, and representatives are contractually required to assign
all Improvements to such party and that such employees, consultants, agents, and
representatives promptly disclose any Improvements to such party.
Each party shall promptly disclose to the other party all Improvements
made or conceived by its employees, consultants, agents, and representatives.
9. PATENTS
Apollo shall be responsible for and shall control, at its expense, the
preparation, filing, prosecution, grant and maintenance of any patent
applications covering Apollo Improvements and shall consult with Endocon on, and
give Endocon a reasonable opportunity to review, all such filings to the extent
they relate to the collaboration established hereby. Endocon shall be
responsible for and shall control, at is expense, the preparation, filing,
prosecution, grant and maintenance of all patent applications covering Endocon
Improvements and shall consult with Apollo on, and give Apollo a reasonable
opportunity to review all such filings to the extent such applications relate to
the collaboration established hereby. Patent applications covering Joint
Improvements shall be filed, prosecuted and maintained jointly under each
party's name and under the direction of both parties, and all expenses relating
thereto will be borne equally by the parties.
Each party agrees to cooperate with the other party fully in the
preparation, filing and prosecution of any patent applications covering Joint
Improvements or any use patent applications.
10. DISPUTE RESOLUTION
(a) The parties hereby agree that the Research Committee will attempt in
good faith to resolve any controversy, claim or dispute (a "Dispute"), arising
out of or relating to this Agreement, through negotiations. Any such Dispute,
which is not settled by the Research Committee within fifteen (15) days after
notice of such Dispute is given by one party to the other in writing, shall be
referred to the Presidents of the parties hereto (the "Senior Executives"). The
Senior Executives shall then meet for negotiations within fifteen (15) days of
the end of the 15-day negotiation period referred to above, at a time and place
mutually acceptable to both Senior Executives. If the Dispute has not been
resolved within thirty (30) days after the end of the commencement of
negotiations between the Senior Executives (which 30-day period may be extended
by mutual agreement of the Senior Executives), subject to any rights to
injunctive relief, and unless otherwise specifically provided for herein, any
Dispute will be settled in accordance with subsections (b) and (c) below.
(b) Any Dispute which is not resolved by the parties within the time
period described in subsection (a) shall be submitted to an alternative dispute
resolution process ("ADR"). Within five (5) business days after the expiration
of the negotiating periods established in accordance with subsection (a) of this
Section, each party shall select for itself a representative with the authority
to bind such party and shall notify the other party in
-6-
<PAGE>
writing of the name of such representative. Within ten (10) business days after
the date of delivery of such notice, the representatives shall schedule a date
for engaging in non-binding ADR with a neutral mediator or dispute resolution
firm mutually acceptable to both representatives. Any such mediation shall be
held in Boston, Massachusetts. Thereafter, the representatives of the parties
shall engage in good faith in an ADR process under the auspices of such
individual or firm. If the representatives of the parties have not been able to
resolve a Dispute within thirty (30) business days after the commencement of the
ADR process, or if the representatives of the parties fail to schedule a date
for engaging in non-binding ADR within the ten- (10-) day period set forth
above, the Dispute shall be settled by binding arbitration as set forth in
subsection (c) below. If the representatives of the parties resolve the dispute
within the thirty- (30-) day period set forth above, then such resolution shall
be binding upon the parties.
(c) If the parties have not been able to resolve the Dispute as provided
in subsections (a) and (b) above, the Dispute shall be finally settled by
binding arbitration. Any arbitration hereunder shall be conducted under rules of
the American Arbitration Association. The arbitration shall be conducted before
three arbitrators chosen according to the following procedure: each of the
parties shall appoint one arbitrator and the two so nominated shall chose the
third arbitrator. If the arbitrators chosen by the parties cannot agree on the
choice of the third arbitrator within a period of thirty (30) days after their
appointment, then the third arbitrator shall be appointed by the Court of
Arbitration of the American Arbitration Association. Any such arbitration shall
be held in Boston, Massachusetts or such other location as the arbitrators may
agree. The arbitrators shall have the authority to grant specific performance,
and to allocate between the parties the costs of arbitration in such equitable
manner as they determine. The arbitral award (i) shall be final and binding upon
the parties; and (ii) may be entered in any court of competent jurisdiction.
(d) Nothing contained in this Section or any other provisions of this
Agreement shall be construed to limit or preclude a party from bringing any
court action for injunctive or other provisional relief to compel the other
party to comply with its obligations hereunder before or during the pendency of
mediation or arbitration proceedings. The parties hereby irrevocably consent to
submit to the jurisdiction of the federal courts located within the Commonwealth
of Massachusetts and agree that such venue is proper and will not seek to alter
or contest such venue.
11. MISCELLANEOUS
Neither party shall have authority to make any statements, representations
or commitments of any kind, or to take any action which shall be binding on the
other party, except as may be explicitly provided for herein or authorized in
writing.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and all of which together shall be deemed to be one
and the same instrument.
-7-
<PAGE>
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective lawful successors and assigns. This Agreement may
not be assigned by either party without the prior written consent of the other
party, except that either of the parties may assign this Agreement to a
successor in connection with the merger, consolidation, or sale of all or
substantially all of its assets or that portion of its business pertaining to
the subject matter of this Agreement.
This Agreement may be amended, supplemented, otherwise modified at any
time (including, without limitation, to broaden this Agreement with respect to
additional compounds, delivery systems and product indications), but only by
means of a written instrument signed by both parties. Any waiver of any rights
or failure to act in a specific instance shall relate only to such instance and
shall not be construed as an agreement to waive any rights or fail to act in any
other instance.
In the event that any provision of this Agreement shall, for any reason,
be held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein.
This Agreement supersedes any and all prior understandings of the parties,
oral or written, relating to the subject matter hereof and constitutes the
entire agreement of the parties relating to the subject matter hereof.
This Agreement shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Massachusetts.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above by their duly authorized officers.
APOLLO GENETICS, INC.
By: /s/ Katherine Gordon
__________________________
Katherine Gordon, Ph.D.
ENDOCON, INC.
By: /s/ David M. Lipton
__________________________
David M. Lipton
-9-
<PAGE>
Exhibit A
---------
APOLLO PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Patent/
Country/region Serial Number Filing Date Title Status
- -------------- ------------- ----------- ----- ------
<S> <C> <C> <C> <C>
United States 08/149,175 11/6/93 Compositions and Methods Abandoned
for Neuroprotection
United States(1) 5,554,601 10/4/94 Methods for Issued 9/10/96
(CIP of 08/149,175) Neuroprotection
[*]
</TABLE>
- ----------
(1) Priority of US 08/149,175, which is now abandoned
* Confidential treatment is being requested for marked portion.
-10-
<PAGE>
Exhibit B
---------
ENDOCON PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Patent/
Country/region Serial Number Filing Date Title Status
- -------------- ------------- ----------- ----- ------
<S> <C> <C> <C> <C>
United States 4,748,024 4/6/87 Flash Flow Fused* Issued (5/31/88)
Medicinal Implants
United States 4,892,734 3/30/88 Dispensing Paste for* Issued (1/9/90)
Forming Medicinal Pellets
[**]
Austria E109941 4/4/88 * Issued (8/17/94)
Belgium 357644 4/4/88 * Issued (8/17/94)
Canada 1330939 4/5/88 Flash Flow Fused Issued (7/26/94)
Medicinal Implants
Canada 1330940 4/5/88 Dispensing Paste for Issued (7/26/94)
Forming Medicinal Implants
Switzerland 357644 4/4/88 * Issued (8/17/94)
Germany 357644 4/4/88 * Issued (8/17/94)
France 357644 4/4/88 * Issued (8/17/94)
Italy 357644 4/4/88 * Issued (8/17/94)
Netherlands 357644 4/4/88 * Issued (8/17/94)
Sweden 357644 4/4/88 Issued (8/17/94)
Norway 178783 4/4/88 Issued (6/5/96)
United States 5137669 5/24/91 Manufacture of Partially Issued (8/11/92)
Fused Peptide Pellets
</TABLE>
* These patents were combined into one called Flash Flow Medicinal Implants
** Confidential treatment is being requested for marked portion.
-11-
<PAGE>
LICENSE AND COLLABORATION AGREEMENT
between
APOLLO GENETICS, INC.
and
ATHENA NEUROSCIENCES, INC.
Dated as of
April 16, 1996
<PAGE>
TABLE OF CONTENTS
License and Collaboration Agreement
TOPIC PAGE NO.
- ----- --------
ARTICLE 1. DEFINITIONS
1.1 Acute Formulation 1
1.2 Affiliate 1
1.3 Committee 1
1.4 Compound(s) 2
1.5 Development Funding 2
1.6 Field 2
1.7 First Commercial Sale 2
1.8 Improvements 2
1.9 Licensed Know-How 2
1.10 Licensed Patent Rights 2
1.11 Licensed Technology 2
1.12 Lilly and Lilly Collaboration 3
1.13 Net Products Revenue 3
1.14 Neurestrol-Registered Trademark- 3
1.15 Person 3
1.16 Plan 3
1 17 Product 3
1.18 Royalty Term 3
1.19 Territory 3
1.20 Valid Patent Claim 3
ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS 3
2.1 Apollo Representations and Warranties 3
2.2 Athena Representations and Warranties 5
2.3 Disclaimers of Warranties 5
ARTICLE 3. LICENSE GRANT 6
3.1 Licensed Technology 6
3.2 Acute Formulation 6
3.3 Neurestrol-Registered Trademark- License Option 6
ARTICLE 4. CONTROL OF DATA 7
<PAGE>
TOPIC PAGE NO.
- ----- --------
ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS 7
5.1 License Fees 7
5.2 Royalty Rate 7
5.3 Royalty Credits 8
ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING 8
6.1 Reports, Exchange Rates 8
6.2 Access 8
6.3 Sublicenses 8
6.4 Confidential Financial Information 9
ARTICLE 7. PAYMENTS 9
7.1 Payment Terms 9
7.2 Exchange Control 9
7.3 Withholding Taxes 9
ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS 9
8.1 Development 9
8.2 Funding and Resources 9
8.3 Committee 9
ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS 10
9.1 Patent Prosecution and Maintenance 10
9.2 Notification of Infringement 11
9.3 Enforcement of the Licensed Patent Rights 11
9.4 Improvements 11
9.5 Infringement Action by Third Parties 11
ARTICLE 10. CONFIDENTIALITY 12
ARTICLE 11. TERMINATION 12
11.1 Expiration 12
11.2 Termination by Athena 12
11.3 Termination for Cause 13
11.4 Effect of Expiration or Termination 13
<PAGE>
TOPIC PAGE NO.
- ----- --------
ARTICLE 12. INDEMNIFICATION AND INSURANCE 13
12.1 Indemnification 13
12.2 Procedure 13
12.3 Insurance 13
ARTICLE 13. FORCE MAJEURE 14
ARTICLE 14. MISCELLANEOUS 14
14.1 Notices 14
14.2 Arbitration 14
14.3 Assignment 14
14.4 Amendments 15
14.5 Entire Agreement 15
14.6 Severability 15
14.7 Waiver 15
14.8 Counterparts 15
14.9 No Announcement 15
<PAGE>
LICENSE AND COLLABORATION AGREEMENT
THIS LICENSE AND COLLABORATION AGREEMENT (the "Agreement"), dated as of
April 16, 1996, is entered into between APOLLO GENETICS, INC., a Delaware
corporation ("Apollo"), having its principal place of business at 222 Third
Street, Suite 2110, Cambridge, Massachusetts 02142, and ATHENA NEUROSCIENCES,
INC., a Delaware corporation ("Athena"), having its principal place of
business at 800 Gateway Boulevard, South San Francisco, California 94080.
RECITALS
A. Apollo is the owner or exclusive licensee of certain Licensed
Patent Rights (as defined below) and know-how relating to certain estrogen
compounds that may have utility in the field of neurodegenerative diseases.
B. On April 16, 1996, Athena has exercised its exclusive option to
acquire from Apollo a worldwide license to such Licensed Patent Rights and
Licensed Know-How (as defined below), upon the terms and conditions
hereinafter set forth.
C. Apollo and Athena wish to enter into this License and Collaboration
Agreement for the development of such compounds; and to establish a steering
committee for the management of such development, all on the terms and
conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises herein contained, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS:
1.1 "ACUTE FORMULATION" means any therapeutic product incorporating a
Compound for the purpose in whole or in part of treating acute (i.e.,
anticipated treatment regimen of less than six months) neurodegenerative
diseases or conditions, such as stroke or head trauma, in an intramuscular or
intravenous formulation.
1.2 "AFFILIATE" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person (including without limitation, as it
pertains to Athena, Elan Corporation plc ("Elan") and its Affiliates).
1.3 "COMMITTEE" shall have the meaning given in Section 8.3 below.
-1-
<PAGE>
1.4 "COMPOUND(S)" shall mean the estrogen compound(s) which are the
subject of the Licensed Patent Rights, with the exception of
Neurestrol-Registered Trademark-, which is the subject of the option set out
in Section 3.3 below.
1.5 "DEVELOPMENT FUNDING" shall mean all funds and resources (including
all out-of-pocket costs, plus reasonable amounts for internal resources)
expended by either party in the development efforts described herein, net of
any amounts received from third parties (such as Eli Lilly and Company) which
are used for such expenditures. Such amounts shall include out-of-pocket
expenses paid after the date of this Agreement under Sections 9.1 and 9.3
below. "Apollo Development Funding" shall mean Development Funding expended
by Apollo. "Athena Development Funding" shall mean Development Funding
expended by Athena.
1.6 "FIELD" shall mean the field of chronic neurodegenerative
conditions or diseases (i.e., an anticipated treatment regimen of six months
or more).
1.7 "FIRST COMMERCIAL SALE" shall mean, with respect to any country in
the Territory, the first sale of Products after any required marketing,
pricing or other approval has been granted by the governing health authority
of such country.
1.8 "IMPROVEMENTS" shall have the meaning given in Section 9.4 below.
1.9 "LICENSED KNOW-HOW" shall mean, with respect to the Field, all
information and data which is not generally known including, but not limited
to, formulas, procedures for experiments, assay protocols, results of
experimentation and testing, data, and specifications which are reasonably
necessary or useful for Athena to make, have made, use or sell the Compounds,
or to practice the processes and methods, claimed or otherwise disclosed in
the Licensed Patent Rights, in which Apollo now or hereafter has an ownership
or licensable interest, and which is in the possession or control of Apollo
during the term of the Agreement.
1.10 "LICENSED PATENT RIGHTS" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force in any country within the
Territory, now or hereafter owned by or licensed to Apollo or to which Apollo
otherwise acquires rights, which claim priority from U.S. Serial Number
149,175 listed in Exhibit A, attached hereto and incorporated by reference,
together with any and all patents that have issued or in the future issue
therefrom, including without limitation utility, model and design patents and
certificates of invention, and (b) all divisionals, continuations,
continuations-in-part, reissues, renewals, supplementary protection
certificates, extensions or additions to any such patents and patent
applications; all to the extent and only to the extent that Apollo has the
right to grant licenses, immunities or other rights thereunder as of the date
or during the term of the Agreement.
1.11 "LICENSED TECHNOLOGY" shall mean, collectively, the Licensed Patent
Rights and the Licensed Know-How.
-2-
<PAGE>
1.12 "LILLY" AND "LILLY COLLABORATION" shall have the meanings given in
Section 2.1 (f) below.
1.13 "NET PRODUCTS REVENUE" shall mean, with respect to any Products,
actual cash receipts by Athena or its Affiliates from payment of invoices
issued to independent customers who are not Affiliates for the sale of such
Products in the Territory by Athena or its Affiliates, less [ * ]
1.14 "NEURESTROL-Registered Trademark-" shall mean 17-estradiol within a
pellet implant subcutaneous drug delivery vehicle.
1.15 "PERSON" shall mean an individual, corporation, partnership,
association, joint venture, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.16 "PLAN" shall have the meaning given in Section 8.3 below.
1.17 "PRODUCT" shall mean any product sold commercially by Athena, its
Affiliates or any sublicensee which incorporates a Compound.
1.18 "ROYALTY TERM" shall mean, with respect to each country in the
Territory, the period commencing on the First Commercial Sale in such country
and ending on the later of (a) ten (10) years from the date of the First
Commercial Sale in such country, or (b) the last expiration of any patent
issued in such country based upon a Valid Patent Claim.
1.19 "TERRITORY" shall mean the entire world.
1.20 "VALID PATENT CLAIM" shall mean either (a) a claim of an issued and
unexpired patent included within the Licensed Patent Rights, which has not
been held permanently revoked, unenforceable or invalid by a decision of a
court or other governmental agency of competent jurisdiction, unappealable or
unappeased within the time allowed for appeal, and which has not been
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise, or (b) a claim of a pending patent application included within the
Licensed Patent Rights, which claim was filed in good faith and has not been
abandoned or finally disallowed without the possibility of appeal or refiling
of such application.
ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS:
2.1 APOLLO REPRESENTATIONS AND WARRANTIES. Apollo hereby represents and
warrants to Athena as follows:
* Confidential treatment has been requested for marked portion
-3-
<PAGE>
(a) Apollo has the full legal right to enter into the Agreement and
to perform its obligations hereunder. The Agreement has been duly executed
and delivered by Apollo, and constitutes a legal, valid and binding
obligation, enforceable against Apollo in accordance with its terms.
(b) All necessary notices, consents, approvals and authorizations
of all governmental authorities and other Persons required to be obtained by
Apollo in connection with the Agreement (including without limitation The
University of Florida Research Foundation, Inc.) have been timely given or
obtained by Apollo. Apollo will take all actions reasonably necessary to
maintain any licenses of Licensed Technology to Apollo in full force and
effect as they may affect or relate to Athena's rights hereunder. Apollo will
not modify, amend or terminate in any material respect any such licenses
without Athena's prior written consent, not to be unreasonably withheld.
Apollo will promptly notify Athena in writing in the event of any alleged
breach, default, expiration or termination under any such license by any
party thereto.
(c) The execution and delivery of the Agreement and the performance
of Apollo's obligations hereunder do not conflict with, or constitute a
default under, any contractual or other obligation of Apollo and, to Apollo's
best knowledge, do not conflict with or violate any requirement of applicable
laws or regulations.
(d) Apollo is the sole owner or exclusive licensee of the Licensed
Technology, and has not granted to any third party any license, sublicense or
other interest of any kind (including any charge, lien or encumbrance) in the
Licensed Technology with the exception of Neurestrol-Registered Trademark-.
Exhibit A represents a correct and complete list of pending patents, patent
applications, continuations-in-part, et al., comprising the Licensed Patent
Rights as of the date of this Agreement.
(e) Except (a) as to Neurestrol-Registered Trademark-, upon the
expiration without exercise of the Neurestrol-Registered Trademark- option in
Section 3.3 below, and (b) as to an Acute Formulation, after compliance with
Section 3.2 below, during the term of this Agreement, Apollo shall not enter
into any agreement with any third party with respect to the development,
license, sale, transfer, encumbrance, marketing or distribution of the
Licensed Technology.
(f) Apollo acknowledges that Athena has a preexisting collaboration
with Eli Lilly and Company ("Lilly"), dated May 31, 1995, as amended, in the
field of therapeutics for Alzheimer's disease (the "Lilly Collaboration").
The Lilly Collaboration provides that Lilly has an exclusive option to
exclusively license worldwide any compound Athena evaluates using technology
developed by Lilly and/or Athena which is subject to the Lilly Collaboration.
Apollo further acknowledges that Athena will evaluate one or more Compounds
using technology developed under the Lilly Collaboration and that Athena will
be obligated to offer Lilly an option to license such Compounds under the
terms of the Lilly Collaboration. Apollo further acknowledges and agrees that
Lilly may, by sublicense, assignment or otherwise, participate in Athena's
rights under this Agreement (as defined below). Athena will provide Apollo
with copies of any amendments to the Lilly Collaboration which could
reasonably be material to Apollo's rights hereunder.
-4-
<PAGE>
(g) To Apollo's best knowledge, the exploitation by Athena of the
Licensed Technology will not infringe upon the patent rights of any third
party as of the date of this Agreement.
2.2 ATHENA REPRESENTATIONS AND WARRANTIES. Athena hereby represents and
warrants to Apollo as follows:
(a) Athena has the full legal right to enter into this Agreement
and to perform its obligations hereunder. The Agreement has been duly
executed and delivered by Athena, and constitutes a legal, valid and binding
obligation, enforceable against Athena in accordance with its terms.
(b) All necessary notices, consents, approvals and authorizations
of all governmental authorities and other persons required to be obtained by
Athena in connection with the Agreement (including without limitation Lilly
and Elan) have been timely given or obtained by Athena.
(c) To Athena's best knowledge, the execution and delivery of the
Agreement and the performance of Athena's obligations hereunder do not
conflict with or violate any requirement of applicable laws or regulations,
and do not conflict, or constitute a default under any contractual or other
obligation of Athena.
(d) Athena acknowledges that Apollo has a pre-existing relationship
with Endocon, Inc. ("Endocon") regarding Neurestrol-Registered Trademark-.
Athena further acknowledges that Endocon and, subject to the option granted
in Section 3.3 below, Apollo, may sublicense, sell or transfer its rights in
Neurestrol-Registered Trademark- to one or more third parties.
2.3 DISCLAIMERS OF WARRANTIES.
(a) APOLLO MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR
OTHERWISE PROVIDED TO ATHENA OR ITS AFFILIATES OR SUBLICENSEES HEREUNDER, AND
HEREBY DISCLAIMS THE SAME.
(b) APOLLO DOES NOT WARRANT THE SAFETY OR EFFICACY OF THE LICENSED
TECHNOLOGY.
-5-
<PAGE>
ARTICLE 3. LICENSE GRANT:
3.1 LICENSED TECHNOLOGY. Apollo hereby grants to Athena an exclusive
license under the Licensed Technology, for use only in the Field, to make,
have made, use and sell Compounds and Products and to practice processes and
methods using the Compounds and Products in the Territory. This license does
not include Neurestrol-Registered Trademark-, which is the subject of the
Neurestrol-Registered Trademark- license option pursuant to Section 3.3.
Athena shall have the right to grant sublicenses with the prior consent of
Apollo, which consent shall not be unreasonably withheld.
3.2 ACUTE FORMULATION. Apollo shall have the right to develop one or
more Acute Formulations, subject to this Section. Prior to undertaking or
agreeing to undertake the development of any Acute Formulation, Apollo shall
first submit a written proposal to Athena, which shall specifically identify
the Acute Formulation to be developed, and shall include a reasonably
detailed three-year scientific and business plan and budget (the "Proposal").
Athena shall have the opportunity to review the Proposal. Within ninety days
of receipt of the full Proposal, Athena may decide in its sole discretion
whether to fund the Proposal.
(a) If Athena declines to fund the Proposal, Apollo shall be free
to develop the Acute Formulation identified in the Proposal independently, or
with a third party upon terms substantially identical to or materially more
favorable to Apollo, with no payment or royalty to Athena.
(b) If Athena agrees to fund the Proposal, Apollo shall grant to
Athena a license. contingent upon further development requirements as
contained in the Proposal, for the Acute Formulation which is the subject of
the Proposal. The license shall provide that Apollo shall be entitled to a
[ * ] percent ([ * ]) royalty in all Net Products Revenue from that Acute
Formulation, and shall contain other terms and conditions substantially
similar to this Agreement. The Committee shall administer that Acute
Formulation in the same way provided for under Section 8.3, below, for
Compounds in the Field. If Athena later determines in its sole discretion not
to pursue development and/or funding under the Proposal and the resulting
license for the Acute Formulation, Apollo shall be free to develop the Acute
Formulation identified in the Proposal independently, or with a third party
on terms substantially identical to or materially more favorable to Apollo.
Athena shall terminate or sublicense its rights under the Acute Formulation
license, as Apollo reasonably requests, and the parties shall negotiate in
good faith a royalty to Athena commensurate with its economic and other
contributions to the date of termination or sublicense of Athena's rights
under that license. Any such license, and any termination or sublicense
thereof, shall have no effect on either party's rights under this Agreement.
3.3 NEURESTROL-Registered Trademark- LICENSE OPTION. In return
for the consideration described herein, Apollo also hereby grants to Athena
an exclusive option, to be exercised in writing no later than January 16,
1997, to obtain an exclusive, worldwide license. under the Licensed
Technology, to Apollo's interest in the Neurestrol-Registered Trademark- drug
delivery technology and to practice processes and methods using
Neurestrol-Registered Trademark- for use in the Field. Prior to that date,
Apollo shall provide, at Athena's request, all information within Apollo's
possession regarding Neurestrol-Registered Trademark-. The fee for
* Confidential treatment has been requested for marked portion
-6-
<PAGE>
exercise of such option shall be $[ * ], payable upon exercise of that
option. If that option is exercised, the parties shall then negotiate in good
faith and use commercially reasonable efforts to enter into a license
agreement upon reasonable economic terms and conditions to be negotiated, and
other terms which are reasonably similar to this Agreement, taking into
account the nature of the transaction and the parties.
ARTICLE 4. CONTROL OF DATA:
4.1 CONTROL OF DATA. Upon termination of this Agreement for any
reason, the following principles shall determine control of and ongoing
access to data generated as a result of efforts to develop one or more
Products under this Agreement:
(a) Any data related to [ * ], will remain proprietary
to Athena and shall not be released, disclosed or communicated by Apollo
either orally or in writing to any other party for any reason, without
Athena's prior written consent in its sole discretion. In the event of
disclosure which Apollo believes to be legally required, Apollo will give as
much advance written notice to Athena as possible of the proposed disclosure,
and will cooperate reasonably in any effort by Athena to prevent or limit the
necessary disclosure.
(b) Any data generated under this Agreement which is not related to
[ * ] may be freely published, disclosed or released by Apollo,
provided that Apollo (i) gives at least sixty (60) days' advance written
notice of each such proposed disclosure, to allow Athena to protect its
intellectual property position, and (ii) retracts any information which
Athena reasonably requests, as being confidential or proprietary to Athena.
(c) Section 9.4 shall continue to apply to Improvements.
ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS:
5.1 LICENSE FEES. Unless notice of termination has been given by
Athena under Article 11 below, Athena shall pay Apollo license fees upon the
occurrence of each event described below, in the amounts shown:
(a) $ [ * ] and
(b) $ [ * ]
5.2 ROYALTY RATE . During the Royalty Term, Athena shall pay to Apollo
royalties of [ * ] percent ([ * ]) of the following: (a) all sublicense fees
and milestone, royalty or other payments (other than research or development
funding) actually received by Athena or any Affiliates from each sublicensee,
in consideration for the sublicense of the Licensed Technology
* Confidential treatment has been requested for marked portion
-7-
<PAGE>
to commercially develop a Compound; and (b) Net Products Revenue actually
received by Athena or any Affiliates from sales of any Product.
5.3 ROYALTY CREDITS. The royalties payable by Athena under Section 5.2
above shall be reduced by the following: (a) a credit for Athena Development
Funding through the period covered by the applicable royalty report, less
Apollo Development Funding for the same period, up to a maximum net
Development Funding credit in that period of [ * ] percent ([ * ]%) of the
gross royalty payable by Athena for the period, with any unused amounts
carrying forward to subsequent periods; and (b) a credit, during the [ * ],
for the license fees paid by Athena under Section 5. I(a) and (b) above, up
to a maximum aggregate license fee credit of [ * ] percent ([ * ]%) of such
amounts, with any unused amounts carrying forward to subsequent periods.
ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING:
6.1 REPORTS, EXCHANGE RATES. Following the First Commercial Sale,
Athena shall furnish to Apollo a quarterly written report showing in
reasonably specific detail, on a country-by-country basis, (a) the number of
Products sold which generated Net Products Revenue to Athena, its Affiliates
and its sublicensees in the Territory during the reporting period; (b) the
royalties payable in United States dollars, if any, which shall have accrued
hereunder for such reporting period; (c) the withholding taxes, if any,
required by law to be deducted in respect of such sales; (d) the date of the
First Commercial Sale in each country in the Territory during the reporting
period; and (e) a calculation of the credits, if any, to which Athena is
entitled under Section 5.3 above. Reports shall be due no later than the
sixtieth (60th) day following the close of each calendar quarter. Athena
shall keep complete and accurate records in sufficient detail to properly
reflect all Products sold which generated Net Products Revenue and to enable
the royalties payable hereunder to be determined.
6.2 ACCESS. Upon the written request of Apollo and not more than twice
in each calendar year, Athena and its Affiliates shall permit Apollo or its
representative (which shall not include Athena's independent accountants) to
have access during normal business hours to such of their respective records
as may be reasonably necessary to verify the accuracy of the royalty reports
hereunder for any year ending not more than thirty-six (36) months prior to
the date of such request.
6.3 SUBLICENSES. Athena shall use commercially reasonable efforts to
include in each permitted sublicense granted by it pursuant to this Agreement
a provision requiring the sublicensee to make reports to Athena, to keep and
maintain records of sales made pursuant to such sublicense and to grant
access to such records by Athena and Apollo to the same extent required of
Athena under this Agreement. Upon the expiration of three (3) years following
the end of any calendar year, the calculation of royalties payable with
respect to such year shall be binding and conclusive upon Apollo and Athena,
its Affiliates and sublicensees.
* Confidential treatment has been requested for marked portion
-8-
<PAGE>
6.4 CONFIDENTIAL FINANCIAL INFORMATION. Apollo and its representatives
shall treat all information subject to review under this Article 6 or under
any sublicense agreement as strictly confidential, and shall not disclose it
to any other party for any purpose.
ARTICLE 7. PAYMENTS:
7.1 PAYMENT TERMS. Royalties shown to have accrued by each royalty
report provided for under Article 6 above shall be due and payable by Athena
on the date such royalty report is due. All payments by Athena to Apollo
under the Agreement shall be paid in United States dollars calculated at the
applicable exchange rate as of the date the payment is made, and shall be
made, at Athena's option, either by bank wire transfer or by check to such
address or account as Apollo shall designate in writing before such payment
is due.
7.2 EXCHANGE CONTROL. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country in the
Territory where the Products are sold, Athena shall have the right, in its
sole discretion, to make such payments by depositing the amount thereof in
local currency to Apollo's account in a bank or other depository institution
in such country. If the royalty rate specified in the Agreement should exceed
the permissible rate established in any country, the royalty rate for sales
in such country shall be adjusted to the highest legally permissible or
government-approved rate.
7.3 WITHHOLDING TAXES. Athena shall be entitled to deduct the amount
of any withholding taxes, value-added taxes or other taxes, levies or charges
with respect to such amounts, other than United States, state or local income
taxes, required to be paid or withheld by Athena, its Affiliates or
sublicenses Athena shall promptly deliver to Apollo, upon request, proof of
payment or withholding of all such taxes, levies and other charges.
ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS:
8.1 DEVELOPMENT. Athena shall undertake reasonable efforts to develop,
obtain regulatory approvals for and sell a Product (or more than one Product,
if Athena so determines in its discretion) for use in the Field in accordance
with the Plan, and will provide such information as the Committee may
reasonably require in order to plan, monitor and approve such development.
8.2 FUNDING AND RESOURCES. Athena shall provide (either alone, or with
partners, sublicensees or other collaborators approved by the Committee) the
funding and resources necessary to carry out the development approved by the
Committee under the Plan for the Field. Apollo may but is not required to
provide any part of such funding.
8.3 COMMITTEE. Subject to the rights of Lilly under the Lilly
Collaboration, the progress of the collaboration in the Field shall be
monitored by a steering committee (the "Committee"). The Committee shall
consist of four individuals, two of whom shall be appointed (and replaced, as
necessary) by each party. Meetings of the Committee shall be held
periodically
-9-
<PAGE>
(but no less than every six (6) months) at a mutually acceptable location.
Each party shall pay the expenses of its Committee members. Reasonably in
advance of each meeting of the Committee, each party to this Agreement shall
provide to the Committee a confidential written report summarizing its best
current estimates of its expenditures and work performed in connection with
the collaboration during the period. The Committee shall exercise reasonable
business judgment in the pursuit of its activities, and may take action only
upon the affirmative vote of at least three of its members. The Committee
shall dissolve as of the termination of this Agreement. The duties of the
Committee shall include the following:
(a) approving and amending, as needed, a development plan and
budget for activities in the Field under this Agreement (the "Plan"). The
Plan shall include both scientific and business milestones, an internal and
external budget and other resources to be devoted to the collaboration;
(b) determining how best to obtain the expertise needed to carry
out the Plan in the best interests of the parties, with preference being
given to Apollo for research efforts in its areas of expertise; and
(c) approving and amending, as needed, a Plan for development of an
Acute Formulation, if the parties have agreed to pursue such development
under the Agreement as provided in Section 3.2(b) above.
ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS:
9.1 PATENT PROSECUTION AND MAINTENANCE. Apollo shall be responsible
for and shall control the preparation, filing, prosecution and maintenance of
all patents and patent applications in the Territory related to the Licensed
Patent Rights and will consult with and consider the reasonable requests of
Athena in all such matters. Apollo shall use its best efforts to provide
Athena with an opportunity to review and comment on all prosecution documents
for each Patent application subject to this Section before the filing of such
prosecution document. Apollo shall supply Athena with a copy of each patent
application as filed which constitutes a portion of the Licensed Patent
Rights, together with notice of its filing date and serial number. Athena
shall reasonably assist and cooperate with Apollo, execute all lawful papers
and instruments and make all oaths and declarations as may be reasonably
necessary in the preparation, prosecution and maintenance of all patents and
other filings referred to in this Section. As a part of its Development
Funding, Athena shall bear all reasonable legal fees and costs of such patent
prosecution and maintenance for the Licensed Patent Rights in the Field while
this Agreement remains in effect. Prior to any period during the term of this
Agreement in which Apollo intends to pursue independent development of an
Acute Formulation under Section 3.2 above, or sublicenses or otherwise
exploits the Licensed Patent Rights outside the Field, Apollo and Athena
shall discuss in good faith and agree on a reasonable allocation of patent
costs for the Licensed Patent Rights within the Field and outside the Field.
Such costs within the Field shall continue to be Athena's responsibility as a
part of its Development Funding. Apollo shall pay or cause to be paid such
costs outside the Field, and such payment is not to be included in Apollo's
Development Funding.
-10-
<PAGE>
9.2 NOTIFICATION OF INFRINGEMENT. Each party shall notify the other
party of any infringement of the Licensed Patent Rights in the Territory
known to such party and shall provide the other party with the available
evidence, if any, of such infringement.
9.3 ENFORCEMENT OF THE LICENSED PATENT RIGHTS. Apollo shall have the
right to determine the appropriate course of action to enforce Licensed
Patent Rights in the Territory or otherwise abate the infringement thereof,
to take (or refrain from taking) appropriate action to enforce Licensed
Patent Rights, to control any litigation or other enforcement action (in its
own name or, if required by applicable law, jointly with Athena) and to enter
into, or permit, the settlement of any such litigation or other enforcement
action with respect to Licensed Patent Rights, and shall consider, in good
faith, the interests of Athena in so doing. If Apollo does not, within ninety
(90) days of receipt of written notice regarding a potential infringement,
abate the infringement or file suit to enforce the Licensed Patent Rights
against at least one infringing party in the Territory, or otherwise dispose
of the matter, Athena shall have the right to take whatever action it deems
appropriate to enforce the Licensed Patent Rights; provided, however, that,
within thirty (30) days after receipt of notice of Athena's intent to file
such suit, Apollo shall have the right to jointly prosecute such suit and in
so doing, to fund fifty percent (50%) of the costs of such suit. The party
controlling any such enforcement action shall not settle the action or
otherwise consent to an adverse judgment in such action that diminishes the
rights or interests of the non-controlling party without the prior written
consent of that party. All monies recovered upon the final judgment or
settlement of any such suit to enforce the Licensed Patent Rights shall be
shared, after reimbursement of expenses, by Apollo and Athena PRO RATA
according to the respective percentages of costs borne by each in such suit.
Notwithstanding the foregoing, Apollo and Athena shall fully cooperate with
each other in the planning and execution of any action to enforce the
Licensed Patent Rights and execute all such documents as reasonably necessary
in connection therewith. If Apollo or Athena is a necessary party to any such
litigation or other enforcement action, at the other party's request and
expense. such party shall join such litigation or other enforcement action.
9.4 IMPROVEMENTS. If either party's tests, experiments and evaluation
under this Agreement result in an invention, discovery, improvement or other
technology, whether patentable or not (an "Improvement"), ownership of such
Improvement shall be determined according to U.S. patent law. Either party
which owns any rights in an Improvement shall cross-license its interest to
the other party, without additional cost or royalty, to the extent necessary
for the other to practice and use its rights in the Licensed Technology as so
improved. Each party shall promptly disclose to the other all such
Improvements.
9.5 INFRINGEMENT ACTIONS BY THIRD PARTIES. (a) If either party or any
of its Affiliates, sublicensees or customers shall be sued (or suit
threatened in writing) by a third party for infringement of a third party's
patent in the Territory because of the use of Licensed Technology or sale of
Products, such party shall promptly notify the other in writing of the
institution of such suit or threat. (b) Before actual suit is brought, and
after consulting with and considering in good faith the interests of Apollo,
Athena may determine, in its sole discretion, to pay any amount it deems
reasonable or necessary to make, use or sell a Product, to obtain a license
to do so or to compromise or settle a claim of infringement. (c) If such
threat or claim is not
-11-
<PAGE>
settled and suit is brought, and the alleged infringing process, method or
composition is claimed under the Licensed Patent Rights, Athena shall have
the right, in its sole discretion, to control the defense of such suit at its
own expense, in which event Apollo shall have the right to be represented by
advisory counsel of its own selection, at its own expense, and shall
cooperate fully in the defense of such suit and furnish to Athena all
evidence and assistance in its control. If Athena does not elect within sixty
(60) days after such notice to so control the defense of such suit, Apollo
may undertake such control at its own expense, and Athena shall then have the
right to be represented by advisory counsel of its own selection, at its own
expense, and Athena shall cooperate fully in the defense of such suit and
furnish to Apollo all evidence and assistance in Athena's control. The party
controlling the suit shall regularly consult with and consider the interests
of the other, and may not settle any part of the suit or otherwise consent to
an adverse judgment in such suit that diminishes the rights or interests of
the non-controlling party without the express written consent (not to be
unreasonably withheld) of the non-controlling party. (d) Any amounts paid by
Athena under the provisions of paragraphs (b) or (c) above, or by Apollo
under paragraph (c) above, shall be included in such party's Development
Funding for the period when actually paid.
ARTICLE 10. CONFIDENTIALITY:
10.1 CONFIDENTIAL INFORMATION. Except as necessary to carry out Section
9.4 above, this Agreement and its performance by the parties shall be subject
to the confidentiality agreement between Apollo and Athena dated as of
February 5, 1995 and a confidentiality agreement between Apollo, Athena and
Eli Lilly and Company dated as of February 14, 1996, which both remain in
full force and effect and are incorporated by this reference, except that
Apollo and Athena hereby agree that any Information other than that which is
covered by Section 4.1(a) above, (including without limitation Information
exchanged or obtained in the performance of this Agreement) shall be
maintained by each of them as confidential for a period of five (5) years
from the date of expiration or termination of this Agreement, on the terms
described in that February 14, 1996 agreement.
ARTICLE 11. TERMINATION:
11.1 EXPIRATION. Unless terminated earlier pursuant to this Article,
the Agreement shall expire, with respect to each country within the
Territory, on the date which is ten (10) years from the date of this
Agreement, unless a patent based on a Valid Patent Claim has been issued
having effect in such country, in which case this Agreement shall expire in
such country upon the expiration of such patent. Upon expiration of the
Agreement with respect to such country pursuant to this Section, Athena shall
have a fully-paid, irrevocable license under the Licensed Know-How, with
right of sublicense, to make, have made, use and sell Products in such
country for use in the Field.
11.2 TERMINATION BY ATHENA. Athena may terminate the Agreement at any
time, in its sole discretion, upon ninety (90) days' prior written notice to
Apollo. Any such termination will not affect Athena's obligations to pay
royalties accrued to the effective date of such termination under Section 5.2
above.
-12-
<PAGE>
11.3 TERMINATION FOR CAUSE. (a) Apollo may terminate this Agreement
after the breach of any material provision by Athena if Athena has not cured
such breach within ninety (90) days after written notice thereof by Apollo.
(b) Athena may terminate the Agreement after the breach of any material
provision by Apollo if Apollo has not either (i) cured such breach within
ninety (90) days after written notice thereof by Athena, or (ii) begun good
faith remedial action within such ninety (90) day period and accomplished
such cure no later than six (6) months after Athena's written notice of
breach. Any such termination will not affect Athena's obligations to pay
royalties accrued to the effective date of such termination under Section 5.2
above. Athena retains all rights of setoff in such event.
11.4 EFFECT OF EXPIRATION OR TERMINATION. In the event of termination
under 11.2 or 11.3(a) above, all rights in the Licensed Technology shall
revert to and be owned exclusively by Apollo. In the event of termination by
Athena under Section 11.3(b) above, Athena may at its option elect to retain
a perpetual, fully-paid license to the Licensed Technology for the Field in
the Territory, upon the other terms contained in this Agreement. Expiration
or termination of the Agreement shall not relieve either party of any
obligation accruing prior to such expiration or termination, and the
provisions of Articles 4, 9.4, l0, 11, and 12 shall survive the expiration or
termination of the Agreement.
ARTICLE 12. INDEMNIFICATION AND INSURANCE:
12.1 INDEMNIFICATION. Each party shall indemnify and hold the other
harmless from all losses, liabilities, damages and expenses, including
reasonable attorneys' fees and costs (collectively, "Liabilities"), that the
other party may suffer as a result of any claims, demands, actions or other
proceedings made or instituted by any third party arising out of or relating
to the gross negligence or willful misconduct of the indemnifying party, its
Affiliates or sublicensees.
12.2 PROCEDURE. A party which intends to claim indemnification under
this Article shall promptly notify the other party of any Liability or action
in respect of which such party intends to claim such indemnification, and the
indemnifying party shall have the right to participate in, and, to the extent
so desired, assume the defense thereof; provided, however, that the claiming
party shall have the right to retain its own counsel, if representation of
the claiming party by the counsel retained by the.indemnifying party would be
inappropriate due to actual or potential conflicts of interest. Without the
prior written consent of the claiming party, the indemnifying party may not
settle or otherwise consent to an adverse judgment in respect to a Liability
if doing so would diminish the rights or interests of the claiming party.
Each party shall cooperate fully with the other in the investigation of any
action, claim or Liability covered by this Article.
12.3 INSURANCE. Athena shall, at its expense (provided such expense is
reasonable for additional coverage of this type), cause Apollo to be named as
an additional named insured under any policy of products liability insurance
which Athena may carry from time to time, and will cause certificates of
insurance to be provided to Apollo upon reasonable request.
-13-
<PAGE>
ARTICLE 13. FORCE MAJEURE:
13.1 EXCUSED PERFORMANCE. Neither party shall be held liable or
responsible to the other party nor be deemed to have defaulted under or
breached this Agreement for failure or delay in fulfilling or performing any
term of the Agreement to the extent, and for so long as, such failure or
delay is caused by or results from causes beyond the reasonable control of
the affected party, including but not limited to fire, floods, embargoes,
war, acts of war (whether war be declared or not), insurrections, riots,
civil commotions, strikes, lockouts or other labor disturbances, acts of God
or acts, omissions or delays in acting by any governmental authority.
ARTICLE 14. MISCELLANEOUS:
14.1 NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement shall be in writing, delivered personally,
by air mail or courier, or by facsimile promptly confirmed by personal
delivery, air mail or courier, postage prepaid, addressed to such other party
at its address indicated below, or to such other address as the addressee
shall have last furnished in writing to the addressor and (unless otherwise
provided in the Agreement) shall be effective upon receipt by the addressee.
If to Apollo: Apollo Genetics, Inc.
222 Third Street, Suite 2110
Cambridge, Massachusetts 02142
Attention: President
If to Athena: Athena Neurosciences, Inc.
800 Gateway Boulevard
South San Francisco, California 94080
Attention: General Counsel
14.2 ARBITRATION. All disputes arising under the Agreement shall be
referred to senior management of the parties for good faith discussion, and
if not so resolved, finally settled by arbitration in Boston, Massachusetts,
under the applicable rules of the American Arbitration Association. The
parties shall agree in their discretion on a single arbitrator or, if no
agreement can be reached within fourteen (14) days of the request by one
party, each party shall appoint an arbitrator and the two so chosen shall
appoint a third. Each party shall pay the expenses of its own counsel and, if
applicable, its chosen arbitrator, and shall share equally the expenses of
the single or third arbitrator. The arbitration award or judgment shall be
final, binding and enforceable, and may include an award of fees and expenses
(including reasonable attorneys' fees). The arbitrator(s) shall not have the
authority to modify, change or refuse to enforce the terms of this Agreement.
14.3 ASSIGNMENT. Neither party may assign its rights or obligations
under the Agreement, in whole or in part, by operation of law or otherwise,
without the prior written . consent of the other; provided, however, that
either may, without such consent, assign the Agreement and its rights and
obligations hereunder to an Affiliate (without diminishing the
-14-
<PAGE>
continuing obligations of the assignor hereunder), or in connection with the
transfer or sale of all or substantially all of its business, or in the event
of its merger or consolidation. Any purported assignment in violation of this
Section 14.3 shall be void.
14.4 AMENDMENTS. No change, modification, extension, termination or
waiver of any of the provisions of this Agreement shall be valid unless made
in writing and signed by duly authorized representatives of the party or
parties to be bound.
14.5 ENTIRE AGREEMENT. The Agreement embodies the entire understanding
between the parties respecting the subject matter hereof and supersedes any
prior understanding and agreements between them respecting the subject matter
hereof. Except for the Confidentiality Agreements described in Section 10.1
above, there are no representations, agreements, arrangements or
understandings, oral or written, between the parties hereto relating to the
subject matter of the Agreement which are not fully expressed herein.
14.6 SEVERABILITY. Any of the provisions of the Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to that extent in such jurisdiction, without rendering invalid or
unenforceable the remaining provisions hereof and without affecting the
validity or enforceability of any of the terms of the Agreement in any other
jurisdiction.
14.7 WAIVER. The waiver by either party of any right hereunder, or the
failure to perform or of a breach by the other party, shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
party, whether of a similar nature or otherwise.
14.8 COUNTERPARTS. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.9 NO ANNOUNCEMENT. Neither party shall make any oral or written
statement, press release, publication, publicity or other public
communication using the name of the other party or any of its Affiliates, or
regarding the fact of or terms of this Agreement, without the prior written
consent of the other party in its sole discretion; except for legally
required disclosures, as to which consent may not be unreasonably withheld.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of April
16, 1996.
ATHENA NEUROSCIENCES, INC.
Date: 10/14/96 By: /s/ Donald R. Joseph
-------- ---------------------------------------
Name: Donald R. Joseph
-------------------------------------
Title: Vice President & General Counsel
------------------------------------
APOLLO GENETICS, INC.
Date: 10/10/96 By: /s/ Katherine Gordon
-------- ---------------------------------------
Name: Katherine Gordon
-------------------------------------
Title: President
------------------------------------
-16-
<PAGE>
License and Collaboration Agreement CONFIDENTIAL
April 6, 1996
EXHIBIT A
United States and Foreign Patents and/or Applications
<TABLE>
<CAPTION>
Country/Region Patent/Serial Number Filing Date Title Status
- -------------- -------------------- ----------- ----- -------
<S> <C> <C> <C> <C>
United States 08/149,175 11/05/93 Compositions and Methods for Abandoned
Neuroprotection
United States(1) 5,554,601 10/04/94 Estrogen Compositions and Methods Issued 9/10/96
(CIP of 08/149,175) for Neuroprotection
[ * ]
</TABLE>
(1) Priority to US 08/149,175
* Confidential treatment has been requested for marked portion
<PAGE>
NEURON LOSS PROTECTION TECHNOLOGY
LICENSE AGREEMENT
Effective as of the 13th day of April, 1993 (the "Effective Date")
between the University of Kentucky Research Foundation, a corporation duly
organized and existing under the laws of the Commonwealth of Kentucky, and
having its principal place of business at 207 Administration Building,
Lexington, Kentucky, 40506 ("UKRF") and Apollo Genetics, Inc., a corporation
duly organized and existing under the laws of the State of Delaware, and
having its principal place of business at 222 Third Street, Suite 3121,
Cambridge, Massachusetts 02142 ("Licensee"), hereby agree as follows:
1. BASIS OF AGREEMENT. UKRF is the owner of Neuron Loss Protection
Technology as later defined herein and desires to have such technology
utilized to promote the public interest by granting a license thereunder.
Licensee has a commitment to facilitate the development of such technology
for the public interest. It is the desire and interest of the parties that
Licensee obtain a license from UKRF to utilize such technology. The purpose
of this Agreement is to set forth the terms and conditions under which UKRF
will grant and Licensee will accept said license.
2. DEFINITIONS.
2.1. "NEURON LOSS PROTECTION TECHNOLOGY" shall mean technology developed
by Dr. Philip Landfield or under his supervision in existence as of the date
hereof, relating to protection against brain neuron loss or cognitive decline
by treatment with calcitriol or other vitamin D metabolites or vitamin D
analogues and any improvements resulting from any relevant program, active as
of the date hereof, supervised by Dr. Landfield.
2.2. "PATENT RIGHTS" shall mean any United States or foreign patent
applications or any patents issuing thereon directed to the invention or
inventions set forth in University of Kentucky I.P.C. Case 578 entitled
"PROTECTION AGAINST BRAIN NEURON LOSS AND ACCOMPANYING COGNITIVE DECLINE BY
CHRONIC TREATMENT WITH CALCITRIOL, A VITAMIN D METABOLITE, AND RELATED
TREATMENTS" owned by, or assignable to, UKRF, together with any division,
reissue, continuation, continuation in part, extension, or addition thereof.
2.3. "LICENSED PRODUCT" shall mean any product which is covered in whole
or in part by (i) a pending claim contained in a Patent Rights application in
the country in which the Licensed Product is made, used, or sold, or (ii) a
valid and unexpired claim contained in a Patent Rights patent in the country
in which the Licensed Product is made, used or sold. A valid claim is any
<PAGE>
claim that has not been held invalid or unenforceable by a court of competent
jurisdiction.
2.4. "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by (i) a pending claim contained in a Patent Rights application in
the country in which the Licensed Process is, used, or sold, or (ii) a valid
and unexpired claim contained in a Patent Rights patent in the country in
which the Licensed Process is used or sold. A valid claim is any claim that
has not been held invalid or unenforceable by a court of competent
jurisdiction.
2.5. "NET SALES" shall mean the gross amount invoiced by Licensee and
its Affiliates from the sales of Licensed Products or Licensed Processes to
independent third parties less:
[ * ]
Licensed Products and Licensed Processes shall be considered "sold" when
invoiced.
2.6. "SUBLICENSE INCOME" shall mean the net royalties (including
advanced royalties or "lump-sum" payments) actually received by Licensee from
non-affiliated third party sublicensees under the license herein granted,
after the deduction of all reasonable legal costs actually incurred by
Licensee in connection with the negotiation and procurement of the pertinent
sublicenses.
2.7. "AFFILIATE" shall mean any corporation or other business entity
controlled by, controlling, or under common control with Licensee. For this
purpose "control" means direct or indirect beneficial ownership of at least
fifty percent (50%) interest in the income or stock of such corporation or
other business.
3. GRANT.
3.1. UKRF hereby grants to Licensee, subject to all the terms and
conditions of this Agreement, the exclusive right and license to make, have
made, use, lease and sell the Licensed Products throughout the world.
* Confidential treatment has been requested for marked portion
2
<PAGE>
3.2. Licensee shall have the right to sublicense worldwide any of the
rights, privileges and licenses granted hereunder.
4. DUE DILIGENCE.
4.1. Licensee agrees to work diligently to bring one or more Licensed
Products or Licensed Processes to the marketplace through a program of
development, production and distribution, including sponsoring of research at
UKRF pursuant to the Sponsored Research Agreement between UKRF and Licensee,
providing UKRF with a minimum of $[ * ] per year for [ * ], in
substantially the form of Exhibit 1 attached hereto.
4.2. Licensee shall provide an annual report on its development efforts
to UKRF, which report shall cite specific goals and objectives in
commercializing the licensed technology and progress in meeting these goals
and objectives.
5. ROYALTIES.
5.1. In consideration of the license granted hereunder by UKRF to
Licensee, Licensee shall pay an earned royalty of [ * ] percent ([ * ]%) of
Net Sales of Licensed Products and Licensed Processes by Licensee and its
sublicensed Affiliates.
5.2. In the event Licensee grants any sublicenses to nonaffiliated third
parties during the term of this Agreement, then for each such sublicense,
Licensee shall pay UKRF an additional royalty at the rate of [ * ]
percent ([ * ]%) of the Sublicense Income collected by Licensee under such
sublicense.
6. REPORTS, RECORDS AND ROYALTY PAYMENTS.
6.1. RECORDS. Licensee shall keep adequate and complete records showing
all Licensed Products and Licensed Processes sold and Net Royalties received,
with respect to which earned royalties and additional royalties are due under
this Agreement. Such records shall include all information necessary to
verify the total amount and computation of earned royalties and additional
royalties due hereunder, and shall be open to inspection on behalf of UKRF
upon reasonable notice during reasonable business hours to the extent
necessary to verify the amount thereof. Such inspection shall be made not
more often than once each calendar year at the expense of UKRF by a Certified
Public Account appointed by UKRF and to whom Licensee has no reasonable
objection. Licensee shall not be required to retain such records for more
than five (5) years after the close of any calendar half year.
6.2. REPORTS. The last day of each February and November throughout the
term of this Agreement and upon a final accounting, Licensee shall furnish
UKRF with a written report, signed by an authorized representative of
Licensee, showing (a)
* Confidential treatment has been requested for marked portion
3
<PAGE>
the total Net Sales of all Licensed Products and the total Net Sales of all
Licensed Processes sold by Licensee and its sublicensed Affiliates in each
country during the preceding calendar half-year; (b) the total amount of
Sublicense Income received by Licensee and its Affiliates from non-affiliated
sublicensees under this license during the preceding calendar half year; (c)
the amount of royalties due on Licensed Products and Licensed Processes sold
by Licensee and its sublicensed Affiliates during the preceding calendar half
year, computed pursuant to the provisions of Section 5.1 hereof; and (d) the
amount of UKRF's pro data share of such Sublicense Income received by
Licensee and its Affiliates during the preceding calendar half year, computed
pursuant to the provisions of Section 5.2 hereof.
6.3. ROYALTY PAYMENTS. With each such half-yearly report, Licensee
shall remit to UKRF the total amount of royalties shown thereby to be due,
subject to any credits which may be taken by Licensee hereunder. Subject to
the provisions of Section 6.4 hereof, payment shall be made in lawful money
of the United States.
6.4. CURRENCY CONVERSION. All payments due hereunder from foreign sales
of Licensed Products and Licensed Processes from time to time shall be paid
in United States funds collectible at par in Boston, Massachusetts. For
purposes of computing such payments, the Net Sales shall first be determined
in the foreign funds for which such Licensed Products or Licensed Processes
are sold (herein called "selling funds") and then converted into its
equivalent in United States funds at either:
(a) the rate applicable to the transfer of funds arising from royalty
payments as established by the exchange control authorities of the country of
which selling funds are the national currency, for the last business day of
the accounting period for which payment is thus made; or
(b) if there is no applicable rate so established, then the selling rate
in United States funds as published by leading commercial banks in the major
city of the country of which selling funds are the national currency, for the
last business day of such accounting period; or
(c) if there is no rate so published, then the buying rate for selling
funds as published by First National Bank of Boston, N.A., for the last
business day of such accounting period.
7. PATENT PROSECUTION AND INFRINGEMENT.
7.1. Licensee shall, in the name of UKRF, apply for, seek prompt
issuance of, and maintain during the term of this Agreement any Patent Rights
in the United States and in foreign countries. The prosecution, filing and
maintenance of all patents shall be the primary responsibility of Licensee,
who
4
<PAGE>
shall consult with UKRF concerning the foregoing and provide copies of
pertinent filings to UKRF.
7.2. Payment of all fees and costs relating to the filing, prosecution
and maintenance of all patents shall be the responsibility of Licensee.
7.3.1. If at any time during the term of this Agreement, Licensee
furnishes to UKRF reasonably convincing written evidence of an infringement
of a patent included in the Patent Rights which adversely and substantially
affects the commercial operations of Licensee under the license granted
hereunder,and UKRF shall within three (3) months after receipt of such
evidence fail to cause such infringement to terminate or to bring a suit or
action to compel termination, then payment of royalties under Section 5
hereof shall be waived so long as such infringement continues; provided,
however, that such royalties shall not be so waived so long as at least one
suit or action is being prosecuted by UKRF for infringement of such patent.
7.3.2. If after said three (3) months, UKRF fails to cause such
infringement to terminate or to bring a suit or action to compel termination,
Licensee shall have the right, but not the obligation, to bring such suit or
action to compel termination and shall have the right for such purpose to
join UKRF as a party plaintiff at Licensee's expense. UKRF independently
shall have the right to join any such suit or action brought by Licensee and,
in such event, shall pay one-half of the cost of such suit or action from the
date of joining. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of UKRF,
which consent shall not unreasonably be withheld. Any damages recovered by
such suit or action shall be first used to reimburse each party hereto for
the cost of such suit or action (including attorney's fees) actually paid by
each party hereto as the case may be, then to reimburse UKRF for any
royalties waived under this Section 7.3 and the residue, if any, shall be
divided equally between the parties hereto.
7.4. In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the Patent Rights shall be brought against
Licensee, UKRF, at its sole option, shall have the right, within thirty (30)
days after commencement of such action, to intervene and take over the sole
defense of the action at its own expense.
7.5. In any infringement suit as either party may institute to enforce
the Patent Rights pursuant to this Agreement, the other party hereto shall,
at the request and expense of the party initiating such suit, cooperate in
all respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples
and the like.
5
<PAGE>
8. TERM AND TERMINATION.
8.1. Unless earlier terminated as hereinafter provided, this Agreement
shall remain in full force and effect until the last to expire of any patent
included in the Licensed Products.
8.2. If Licensee shall cease to carry on its business, this Agreement
shall terminate upon notice by UKRF.
8.3. Should Licensee fail to pay UKRF such royalties as are due and
payable hereunder, UKRF shall have the right to terminate this Agreement on
forty-five (45) days written notice, unless Licensee shall pay UKRF within
the forty-five day (45) notice period, all such royalties and interest that
are due and payable. Upon the expiration of the forty-five (45) day period,
if Licensee shall not have paid all such royalties and interest due and
payable, UKRF, at its sole option, may immediately terminate this Agreement
and all rights, privileges and license hereunder granted.
8.4. Licensee shall have the right to terminate this Agreement at any
time upon six (6) months written notice to UKRF, and upon payment of all
amounts due UKRF through the effective date of termination.
8.5. Upon any material breach or default of this Agreement by Licensee,
other than those delineated in Sections 8.2 and 8.3 which shall always take
precedence in that order over any material breach or default referred to in
this Section 8.5, UKRF shall have the right to terminate this Agreement and
the rights, privileges and license hereunder granted upon ninety (90) days
written notice to Licensee. Such termination shall become effective
immediately at the conclusion of such notice period unless Licensee shall
have cured any such breach or default prior to the expiration of the ninety
(90) day period.
8.6. Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. Licensee and its
sublicensed Affiliates and any non-affiliated third party sublicensees
thereof may, after the effective date of such termination, sell all Licensed
Products which are in inventory at the time of termination and Licensed
Processes for which inventory was received at the time of termination, and
complete and sell Licensed Products which Licensee can clearly demonstrate
were in the process of manufacture at the time of such termination, provided
that Licensee shall pay to UKRF the royalties thereon as required by Section
5 of this Agreement and shall submit the reports required by Section 5 hereof
on the sales of Licensed Products and Licensed Processes.
9. INDEMNIFICATION AND INSURANCE.
6
<PAGE>
9.1. Licensee shall indemnify, defend and hold harmless UKRF and its
trustees, officers, employees, and affiliates (the "Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys' fees
and expenses of litigation) incurred by or imposed upon the Indemnitees, or
any one of them, in connection with any claims, suits, actions, demands or
judgments (a) arising out of the production, manufacture, sale, use in
commerce, or promotion by Licensee or by a licensee, affiliate or agent of
Licensee, or any product, process or service relating to, or developed
pursuant to, this Agreement or (b) arising out of any other activities to be
carried out pursuant to this Agreement.
9.2. Licensee's indemnification under Section 9.1(a) shall apply to any
liability, damage, loss or expense whether or not it is attributable to the
negligent activities of the Indemnitees. Licensee's indemnification under
Section 9.1(b) shall not apply to any liability, damage, loss or expense to
the extent that it is attributable to (i) the negligent activities of the
Indemnitees, or (ii) the intentional wrongdoing or intentional misconduct of
the Indemnitees.
9.3. At such time as any product, process or service relating to, or
developed pursuant to, this Agreement is being commercially distributed or
sold (other than for the purpose of obtaining regulatory approvals) by
Licensee or by a licensee, affiliate or agent of Licensee, Licensee shall, at
its sole cost and expense, procure and maintain policies of comprehensive
general liability insurance in amounts not less than One Million Dollars per
person per occurrence and naming the Indemnitees as additional insureds.
Such comprehensive general liability insurance shall provide (a) product
liability coverage; (b) broad form contractual liability coverage for
Licensee's indemnification under Sections 9.1 and 9.2 of this Agreement; and,
(c) a provision of non-cancellation except upon sixty (60) days written
notification to UKRF.
9.4. In the event any such action is commenced or claim made or
threatened against UKRF or other Indemnitees as to which Licensee is
obligated to indemnify it (them) or hold it (them) harmless, UKRF or the
other Indemnitees shall promptly notify Licensee of such event and Licensee
shall assume the defense of, and may settle, that part of any such claim or
action commenced or made against UKRF (or other Indemnitees) which relates to
Licensee's indemnification and Licensee may take such other steps as may he
necessary to protect itself. Licensee shall not be liable to UKRF or other
Indemnitees on account of any settlement of any such claim or litigation
affected without Licensee's consent. The right of Licensee to assume the
defense of any action shall be limited to that part of the action commenced
against UKRF and/or Indemnitees which relates to Licensee's obligations of
indemnification and holding harmless.
7
<PAGE>
9.5. This Section 9 shall survive expiration or termination of this
Agreement.
10. DISCLAIMER OF WARRANTIES.
10.1. UKRF MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR
OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.
10.2. UKRF DOES NOT WARRANT THE VALIDITY OF THE TECHNOLOGY LICENSED
HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF
SUCH TECHNOLOGY OR THAT SUCH TECHNOLOGY MAY BE EXPLOITED BY LICENSEE,
AFFILIATES OR SUBLICENSEES WITHOUT INFRINGING ANY PATENTS. IF BIOLOGICAL
MATERIALS ARE LICENSED HEREUNDER, UKRF MAKES NO REPRESENTATION THAT SUCH
MATERIALS OR THE METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM
LIABILITY FOR PATENT INFRINGEMENT.
11. NOTICES.
11.1. All reports, notices and other communications from Licensee to
UKRF as provided hereunder shall be in writing and mailed or delivered to:
University of Kentucky Research Foundation
207 Administration Building
Lexington, Kentucky 40506
or other individuals or addresses as shall hereafter be furnished by written
notice to Licensee.
11.2. All reports, notices and other communications from UKRF to
Licensee as provided hereunder shall be in writing and mailed or delivered to:
Apollo Genetics, Inc.
222 Third Street, Suite 3121
Cambridge, Massachusetts 02142
with a copy to: Bromberg & Sunstein
10 West Street - 7th Floor
Boston, Massachusetts 02111
Attn: Bruce D. Sunstein
or other individuals or addresses as shall hereafter be furnished by written
notice to UKRF.
12. RESTRICTIONS ON USE OF NAMES. Licensee shall not use the names of
UKRF, its related entities and its employees, or any adaptations thereof, in
any advertising, promotional or sales literature or in any securities reports
required by the Securities and Exchange Commission, without the prior written
8
<PAGE>
consent of UKRF in each case; provided, however, that Licensee (a) may offer
to publications by employees of UKRF in the scientific literature or (b) may
state that a license from UKRF has been granted as herein provided.
13. MISCELLANEOUS.
13.1. For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. neither party shall
have authority to make any statements representations or commitments of any
kind, or to take any action, that will be binding on the other party.
13.2. If any one or more of the provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
13.3. This Agreement shall be binding upon the parties, and their
successors and assigns.
13.4. This instrument contains the entire Agreement between the parties
hereto. No verbal agreement, conversation or representation between any
officers, agents, or employees of the parties hereto either before or after
the execution of this Agreement shall affect or modify any of the terms or
obligations herein contained.
13.5. No change, modification, extension, termination or waiver of this
Agreement, or any of the provisions herein contained, shall be valid unless
made in writing and signed by a duly authorized representative of each party.
13.6. The captions are provided for convenience and are not to be used
in construing this Agreement.
13.7. She parties agree that they have participated equally in the
formation of this Agreement and that the language herein should not he
presumptively construed against either of them.
13.8. This Agreement may be signed in counterparts which collectively
shall constitute a single agreement.
13.9. Neither party shall be in breach hereof by reason of its delay z
the performance of or failure to perform any of its obligations hereunder, if
that delay or failure is caused by strikes, acts of God or the public enemy,
riots, incendiaries, interference by civil or military authorities,
compliance with governmental priorities for materials, or any fault beyond
its control or without its fault or negligence.
9
<PAGE>
13.10. The parties each, at any time or from time to time, shall execute
and deliver or cause to be delivered such further assurances, instruments or
documents as may be reasonably necessary to fulfill the terms and conditions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION
By: /s/ Lee J. Magid
---------------------------------------
Name: Lee J. Magid
---------------------------------------
Title: Executive Director, U.K.R.F.
---------------------------------------
APOLLO GENETICS, INC.
/s/ Katherine Gordon
---------------------------------------------
Katherine Gordon, Ph.D
President
10
<PAGE>
Exhibit 1
UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION
SPONSORED RESEARCH AGREEMENT
This Agreement has Expired
11
<PAGE>
PATENT LICENSE AGREEMENT
WITH RESEARCH COMPONENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES:
I DEFINITIONS
II GRANT
III DUE DILIGENCE
IV ROYALTIES
V REPORTS AND RECORDS
VI PATENT PROSECUTION
VII INFRINGEMENT
VIII PRODUCT LIABILITY
IX EXPORT CONTROLS
X NON-USE OF NAMES
XI ASSIGNMENT
XII TERM AND TERMINATION
XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
XIV ARBITRATION
XV MISCELLANEOUS PROVISIONS
This Agreement is made and entered into this 15th day of December 1993
(the Effective Date), and revised and restated on 15th day of October 1996, by
and between THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., a
not-for-profit corporation duly organized and existing under the laws of the
State of Florida and having its principal office at 223 Grinter Hall,
Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to UFRFI), and
APOLLO GENETICS, INC., a corporation duly organized under the laws of the State
of Delaware and having its principal office at 222 Third Street, Suite 2110,
Cambridge, Massachusetts 02142 (hereinafter referred to as LICENSEE).
WITNESSETH
WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later
defined herein) by assignment from the University of Florida (hereinafter
referred to as University) relating to UFRFI Case No. 1193 entitled
"ESTROGENS PREVENT DEATH OF CELLS IN THE CENTRAL NERVOUS SYSTEM ASSOCIATED
WITH AGE, DISEASE OR INSULT," invented by James W. Simpkins, PhD, and
invented in-part by Marzahan Singh and Jean Bishop filed in the United States
Patent and Trademark Office on November 5,1993 and has the right to grant
licenses under said Patent Rights;
1
<PAGE>
WHEREAS, UFRFI desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder, subject only to a
royalty-free, non-exclusive license to be granted to the United States
government, as required by law;
WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into
this Agreement, that LICENSEE is familiar with the development, production,
manufacture, marketing and sale of products similar to the "Licensed Product(s)"
(as later defined herein) and/or the use of the "Licensed Process(es)" (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights commercially so that public
utilization and royalty income to UFRFI shall result therefrom;
WHEREAS, LICENSEE desires to obtain a license from UFRFI under the
Patent Rights upon the terms and conditions hereinafter set forth; and
WHEREAS, LICENSEE has certain additional research it desires which the
parties agree should be conducted by the University of Florida;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meaning:
1.1. "LICENSEE" shall mean all of the following:
(a) a related company of LICENSEE, the voting stock of which is
directly or indirectly at least fifty percent (50%) owned or
controlled by LICENSEE;
(b) an organization which directly or indirectly controls more
than fifty percent (50%) of the voting stock of LICENSEE;
(c) an organization, the majority ownership of which is directly
or indirectly common to the ownership of LICENSEE.
1.2. "Patent Rights" shall mean all of the following UFRFI intellectual
property:
(a) the United States and foreign patents and/or patent
applications listed in Exhibit A;
(b) United States and foreign patents issued from the
2
<PAGE>
applications listed in Exhibit A and from divisionals and
continuations of these applications;
(c) claims of U.S. continuation-in-part applications and foreign
continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically
described in the U.S. and foreign applications listed in
Exhibit A;
(d) claims of all foreign patent applications, and of the
resulting patents, which are directed to subject matter
specifically described in the United States patents and/or
patent applications described in (a), (b), or (c) above;
(e) any reissues of United States patents described in (a), (b),
(c), or (d) above.
1.3. A "Licensed Product" shall mean any product or part thereof which:
(a) is covered or its use is covered in whole or in part by an
issued, unexpired claim or a pending claim contained in the
Patent Rights in the country in which any Licensed Product is
made, used or sold;
(b) is derived from Patent Rights, Know-How (as later defined
herein), and/or trade secrets related to or described in
Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.4. A "Licensed Process" shall mean any process or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Patent Rights in the
country in which any Licensed-Process is made, used or sold,
(b) is derived from Patent Rights, Know-How, and/or trade secrets
related to or described in Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.5. "Net Sales" shall mean LICENSEE's billings, for Licensed Products and
Licensed Processes produced hereunder invoiced to independent third
parties less the sum of the following:
3
<PAGE>
[ * ]
[ * ]
1.6. "Know-How" shall mean any and all technical data, information, or
knowledge which is developed by Dr. Simpkins and.coworkers as a result
of Project Work.
1.7. "Research Agreement" shall mean that agreement attached hereto as
Exhibit B with its associated terms and conditions.
1.8. "University Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or unpatentable,
which are conceived and/or made solely by one or more employees of
University in performance of the Project Work (as defined in the
Research Agreement). For the purposes of this Paragraph, the "making" of
inventions shall be governed by U.S. laws of inventorship.
1.9. "Joint Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or unpatentable,
which are conceived and/or made jointly by personnel of University
(including faculty and employees) and of LICENSEE in performance of the
Project Work (as defined in the Research Agreement). For the purposes of
this Paragraph, the "making" of inventions shall be governed by U.S.
laws of inventorship.
1.10. "University Patents" shall mean collectively and individually any and
all United States and foreign patent applications and any and all issued
United States Letters Patent and foreign patents owned by University
which pertain to University Inventions derived during Project Work (as
defined in the Research Agreement) under this Agreement.
1.11. "Joint Patents" shall mean collectively and individually any and all
United States and foreign patent applications and any and all issued
United States Letter Patents and
* Confidential treatment has been requested for marked portion
4
<PAGE>
foreign patents jointly owned by LICENSEE and University which pertain
to Joint Inventions derived during Project Work (as defined in the
Research Agreement) under this Agreement.
1.12. "Participating Sublicense" shall mean any sublicense whereby LICENSEE
and its sublicensee cooperate, through a strategic alliance, in the
development, manufacturing and/or commercialization of Licensed Product
or Licensed Process; and wherein there is a division or sharing of
responsibilities and/or expenses.
1.13. "Non-Participating Sublicense' shall mean any sublicense whereby
LICENSEE does not participate in development, manufacturing and/or
commercialization of Licensed Product or Licensed Process; and wherein
all expenses and responsibilities attendant thereto are borne
exclusively by sublicensee.
1.14. "Participating Sublicense Income" shall mean the net proceeds (including
advanced royalties or "lump-sum" payments) actually received by LICENSEE
for the grant of rights under Participating Sublicenses under the
license herein granted.
1.15. "Non-Participating Sublicense Income" shall mean the net proceeds
(including advanced royalties or "lump-sum" payments) actually received
by LICENSEE for the grant of rights under Non-Participating Sublicenses
under the license herein granted, after the deduction of all reasonable
legal costs, documented by credible written evidence provided to UFRFI,
actually incurred by LICENSEE in connection with the negotiation and
procurement of the pertinent sublicenses.
ARTICLE II - GRANT
2.1. UFRFI hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the Licensed Products and Licensed Processes
and Know-How throughout the world in any and all fields of use to the
end of the term for which the Patent Rights are granted unless sooner
terminated according to the terms hereof, subject to the non-exclusive
licensed granted to the United States Government.
2.2. In order to establish exclusivity for LICENSEE, UFRFI hereby agrees that
it shall not grant any other license to make, have made, use, lease and
sell Licensed Products or to utilize Licensed Processes throughout the
world in any and all fields of use during the period of time commencing
with the Effective Date of this Agreement and terminating with the
expiration of this Agreement.
5
<PAGE>
2.3. UFRFI reserves the right to practice under the Patent Rights for its own
noncommercial research purposes.
2.4. LICENSEE shall have the right to enter into sublicensing agreements for
the rights, privileges and licenses granted hereunder. However, Licensee
shall notify UFRFI in writing of the initiation of license negotiations
with all potential sublicenSees.
2.5. LICENSEE hereby agrees that every Non-Participating Sublicense
agreement to which it shall be a party and which shall relate to the
rights, privileges and license granted hereunder shall contain a
statement setting forth the date upon which LICENSEE's exclusive rights,
privileges and license hereunder shall terminate. LICENSEE agrees that
any sublicense granted hereunder shall provide that the obligations to
UFRFI under Article I (Definitions), II (Grants), V (Reports and
Records), VII (Infringement), VIII (Product Liability), IX (Export
Controls), X (Non-Use of Names), XII (Term and Termination), XIV
(Arbitration), and XV (Miscellaneous Provisions) of this Agreement shall
be binding on upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of such Articles to
each sublicense agreement.
2.6. LICENSEE hereby agrees that every Participating Sublicense agreement to
which it shall be a party and which shall relate to the rights,
privileges and license granted hereunder shall not breach any terms of
this Agreement.
2.7. LICENSEE agrees to forward to UFRFI a copy of any and all
Non-Participating Sublicense agreements within thirty (30) days of the
execution of such sublicense agreements and further agrees to forward to
UFRFI annually a copy of such reports received by LICENSEE from its
sublicensees during the preceding twelve (12) month period under the
sublicenses as shall be pertinent to a royalty accounting under said
sublicense agreements.
2.8. Should LICENSEE receive from sublicensees anything of value in lieu of
cash payments in consideration for any sublicense under this Agreement,
LICENSEE and UFRFI shall negotiate in good faith to determine the
corresponding monetary value of the non-cash payments, and to arrive at
an equitable disposition.
2.9. The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estopped or otherwise as to any
technology not specifically set forth herein.
2.10. UFRFI hereby grants to LICENSEE an exclusive option to negotiate for an
exclusive license to sublicense, manufacture, use and sell products and
processes based on
6
<PAGE>
or a under University Inventions, University Patents and the
University's component of Joint Inventions arising under Project Work as
described and defined in Exhibit B. and UFRFI shall use its best efforts
to obtain assignment of any inventions or portions thereof conceived
and/or made by students of the University in their performance of the
Project Work. This option shall extend for a period of six (6) months
after the date of conception and disclosure to LICENSEE of any
University Inventions in the area of [ * ] During such option period,
University shall not offer these rights to any third party. LICENSEE
shall exercise its option to negotiate for an exclusive license by
providing to UFRFI written notice of such exercise and the parties
hereto shall commence the negotiation, in good faith, of the said terms
including, but not limited to royalty, license fee, and due diligence to
commercialize products within thirty (30) days of LICENSEE's notice to
UFRFI. The parties hereto shall use all reasonable effort to reach
agreement relative to said terms within six (6) months of commencement
of said negotiation. The following factors shall be considered by the
parties: Should LICENSEE request a license to any University Invention
or University Patent which is subject to this Agreement after the
expiration or the option period granted herein, University, if it has
not exclusively licensed such University Invention or University Patent
and is not in active negotiations therefore prior to LICENSEE's request,
shall negotiate with LICENSEE for a license as provided hereunder. If
University has non-exclusively licensed those University Inventions or
University Patents prior to LICENSEE's request, University shall grant
to LICENSEE, as above, a non-exclusive license under terms and
conditions at least as favorable as the previous non-exclusive license.
2.11. Any patent applications made or patents issued from Joint Inventions
shall be filed in University's and LICENSEE's names, and the portion
and/or claims thereof not made by University personnel shall belong to
LICENSEE and shall not be subject to the provisions of this Agreement.
In determining royalty rates in licenses to such patent applications or
patents resulting from the joint effort of LICENSEE and University,
there shall be taken into consideration the relative contributions of
the respective joint inventors of the invention.
2.12. Any controversy, dispute or claim arising out of, or relating to, any
provisions of this Paragraph 2 which cannot otherwise be resolved by
good faith negotiations between the parties shall be resolved by
arbitration in accordance with the provisions of Article XIV of this
Agreement.
2.13. LICENSEE agrees that for Licensed Products covered by
* Confidential treatment has been requested for marked portion
7
<PAGE>
Patent Rights that are subject to the non-exclusive royalty-free a
license-to the United States government, such Licensed Products will be
manufactured substantially in the United States, in accordance with
applicable federal law.
2.14. LICENSEE further agrees that it shall abide by all rights and
limitations of U.S. Code Title 35, Chapter 38, and implementing
regulations thereof, for all patent applications and patents invented in
whole or in part with federal money.
ARTICLE III - DUE DILIGENCE
3.1. LICENSEE shall use diligent efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous
and diligent program for exploitation of the Patent Rights to attain
maximum commercialization of Licensed Products and Licensed Processes,
including sponsoring of research at UFRFI pursuant to the Research
Agreement, providing UFRFI with a minimum total of [ * ] Dollars
($[ * ]) over [ * ].
3.2. LICENSEE's failure to perform in accordance with Paragraph 3.1 above
shall be grounds for UFRFI to terminate this Agreement pursuant to
Paragraph 12.4 hereof.
ARTICLE IV - ROYALTIES
4.1. For the rights, privileges and license granted hereunder, LICENSEE shall
pay royalties to UFRFI in the manner hereinafter provided to the end of
the term of the Patent Rights or until this Agreement shall be
terminated as hereinafter provided:
(a) An annual license maintenance fee payable commencing on
January 1, 1999 and on January 1 of each year thereafter;
provided, however, that such fee shall be waived: (i) for each
year that the Research Agreement continues in effect beyond
its initial term of three (3) years; or (ii) for each year in
which LICENSEE milestones for such year have been achieved.
The LICENSEE milestones shall be the subject of mutual
agreement and are attached hereto and incorporated herein by
reference as Exhibit C. The first License Maintenance Fee
shall be the sum of [ * ] Dollars ($[ * ]), and
each successive License Maintenance Fee payable hereunder
shall be increased by [ * ] Dollars ($[ * ]) until
the license maintenance fee is [ * ] Dollars
($[ * ]). Thereafter, the License Maintenance Fee shall be
[ * ] Dollars ($[ * ]) per year during the
remainder
* Confidential treatment has been requested for marked portion
8
<PAGE>
of the term of this Agreement. The License Maintenance Fee for
a given year shall be creditable against any running royalties
subsequently due during said year-under subparagraph 4.1(b)
below.
(b) Running royalty in an amount equal to [ * ] Percent
([ * ]%) of the Net Sales actually received by LICENSEE
of the Licensed Products and Licensed Processes sold by or for
LICENSEE [ * ].
4.2. In the event LICENSEE grants any Non-Participating Sublicenses during
the term of this Agreement, then for each such Sublicense, LICENSEE
shall pay UFRFI a royalty at the rate of [ * ] percent ([ * ]%) of
the Non-Participating Sublicense Income collected by LICENSEE under such
sublicense.
4.3. No multiple royalties shall be payable in the event that any Licensed
Product or Licensed Process is covered by more than one patent or claim
under Patent Rights as herein defined.
4.4. Royalty payments shall be paid in United States dollars in Gainesville,
Florida or at such other place as UFRFI may reasonably designate
consistent with the laws and regulations of any foreign country. If any
currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange
rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar quarterly reporting period to which such royalty
payments relate.
4.5. In the event that any taxes, withholding or otherwise, are levied by any
taxing authority in connection with accrual or payment of any royalties
payable by LICENSEE under this Agreement, and LICENSEE determines in
good faith that it must pay such taxes, LICENSEE shall have the right to
pay such taxes to the local tax authorities on behalf of UFRFI and
payment of the net amount due after reduction by the amount of such
taxes, shall fully satisfy LICENSEE's royalty obligations under this
Agreement. LICENSEE shall provide UFRFI with appropriate receipts or
other documentation supporting such payment. LICENSEE shall inform UFRFI
in writing, within thirty (30) days of notification that taxes will or
have been levied by a taxing authority.
ARTICLE V - REPORTS AND RECORDS
5.1. LICENSEE shall keep full, true and accurate books of account containing
all particulars that may be necessary for the purpose of showing the
amounts payable to UFRFI
* Confidential treatment has been requested for marked portion
9
<PAGE>
hereunder. Said books of account shall be kept at LICENSEE's principal
place of business or the principal place of business of the appropriate
division of LICENSEE to which this Agreement relates. Said books and the
supporting data shall be open to inspection on behalf of UFRFI, after
sales of Licensed Product commence, upon reasonable notice during
reasonable business hours to the extent necessary for the purpose of 5
verifying LICENSEE's royalty statement. Such inspection shall be made
not more than often than once each calendar year at the expense of UFRFI
by a Certified Public Accountant appointed by UFRFI and to whom LICENSEE
has no reasonable objection. LICENSEE shall not be required to retain
such records for more than five (5) years after the close of any
calendar half-year.
5.2. Licensee, within forty-five (45) days after June 30 and December 31, of
each year, shall deliver to UFRFI true and accurate reports, giving such
particulars of the business conducted by LICENSEE and its sublicensees
during the preceding six-month period under this Agreement as shall be
pertinent to a royalty accounting hereunder. These shall include at
least the following;
(a) number of Licensed Products manufactured and sold.
(b) total billings for Licensed Products sold.
(c) accounting for all Licensed Processes used or sold.
(d) deductions applicable as provided in Paragraphs 1.5 and 1.15.
(e) total royalty due.
(f) names and addresses of all sublicensees of LICENSEE and copies
of reports submitted by sublicensees.
(g) A progress report on patent filings in each country, including
the serial number, name of patent application, name of
inventors and status of each patent application covering
Licensed Products or Licensed Processes.
5.3. With each such report submitted, LICENSEE shall pay to UFRFI the
royalties due and payable under this Agreement. If no royalties shall be
due, LICENSEE shall so report.
5.4. The royalty payments and license maintenance fees set forth in this
Agreement shall, if overdue, bear interest until payment at the monthly
rate of one percent (1%). The payment of such interest shall not
preclude UFRFI from exercising any other rights it may have as a
consequence of the lateness of any payment.
10
<PAGE>
5.5. On or before the sixtieth (60th) day following the close of LICENSEE's
fiscal year, LICENSEE shall provide UFRFI with a financial statement for
the preceding fiscal year. Such financial statements shall be unaudited
until and unless LICENSEE'S stock becomes publicly traded.
ARTICLE VI - PATENT PROSECUTION
6.1. LICENSEE shall, in the name of the University of Florida, apply for,
seek issuance of, and maintain during the term of this Agreement the
Patent Rights in the United States and in foreign countries. The
prosecution, filing and maintenance of all Patent Rights patents and
applications shall be the primary responsibility of LICENSEE. LICENSEE
shall seek patent extension for patents licensed under the Patent Rights
in the United States and in such foreign countries as may be designated
by LICENSEE, under such applicable laws and regulations throughout such
countries, where such patent extension rights are available currently or
are available in the future. LICENSEE shall keep University advised as
to all developments with respect to the Patent Rights and shall supply
to University copies of all correspondence and papers received in
connection therewith within ten (10) business days of receipt or filing
thereof. As required by law, LICENSEE must provide all correspondence to
and advise UFRFI in a timely manner in order to permit UFRFI to comment
on all actions before they are taken by LICENSEE's patent counsel. All
final decisions with respect to prosecution of the Patent Rights are
reserved to UFRFI, as required by law.
6.2. Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the Patent Rights shall be the responsibility of
LICENSEE.
6.3. If LICENSEE desires that a patent application be filed on University
Inventions, LICENSEE shall promptly prepare, file and prosecute a patent
application or applications in the University's name, and/or any
pertinent continuation, continuation-in-part and/or reissue
application(s) thereof in the United States directed to such University
Inventions. University shall thereafter assign all such University
Inventions to UFRFI. LICENSEE shall bear all expenses incurred in
connection with such preparation, filing and prosecution of U.S. and
foreign patent application(s) and patents directed to University
Inventions. UFRFI shall cooperate with LICENSEE to assure that such
application or applications, and any such continuation, continuation-in
part and/or reissue application(s) thereof will cover, to the best of
LICENSEE's knowledge, all items of commercial interest and importance.
UFRFI shall have the right to advise and cooperate with LICENSEE in such
prosecution, and such advice shall not be rejected unreasonably.
11
<PAGE>
6.4. If LICENSEE elects not to exercise its option(s) pursuant to this
Agreement, or decides to discontinue the financial support of the
prosecution or maintenance of the protection of the Patent Rights in the
United States and in foreign countries, or is grossly negligent in its
prosecution or maintenance of the protection thereof, UFRFI shall be
free a to file or continue prosecution or maintain any such
application(s), and to maintain any protection issuing thereon in the
U.S. and in any foreign country at UFRFI's sole expense.
ARTICLE VII - INFRINGEMENT
7.1. LICENSEE shall inform UFRFI promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any available
evidence thereof.
7.2. During the term of this Agreement, LICENSEE and/or sublicensees shall
have the primary responsibility to prosecute any alleged infringement of
Patent Rights. UFRFI shall have the right, but not the obligation, to
share up to [ * ]% of the costs, or [ * ]% if LICENSEE and/or
sublicensees choose not to prosecute. Either party may claim the other
as co-plaintiff. The total cost of any such infringement action shall be
shared appropriately with respect to expenses incurred. No settlement,
consent judgment or other voluntary final disposition of the suit may be
entered into without the consent of UFRFI, which consent shall not
unreasonably be withheld; provided, however, that LICENSEE shall
indemnify UFRFI against any order for costs that may be made against
UFRFI in such proceedings, in accordance with this Paragraph.
7.3. In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up to
[ * ] percent ([ * ]%) of the royalties otherwise thereafter due UFRFI
hereunder and apply the same toward reimbursement of its expenses,
including reasonable attorneys' fees, in connection therewith. Said
withholding of royalties shall begin no earlier than the date LICENSEE
first receives a bill for professional services or expenses associated
with the enforcement and/or defense of the Patent Rights. Any recovery
of damages by LICENSEE for any such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE
relating to the suit, and next toward reimbursement of UFRFI for any
royalties past due or withheld with interest and applied pursuant to
this Article VII. Any additional monies recovered from the settlement of
any such suit shall be shared on a pro rata basis between LICENSEE
and/or sublicensees and UFRFI according to the respective percentages of
costs borne by each in such suit.
7.4. In any infringement suit as either party may institute to
* Confidential treatment has been requested for marked portion
12
<PAGE>
enforce the Patent Rights pursuant to this Agreement, the other party
hereto shall, at the request and expense of the party initiating such
suit, cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
7.5. In the event that LICENSEE or any of its sublicensees are sued (or such
suit is threatened in writing) for infringement of a third party's
patent because of the use of a Licensed Product or Licensed Process,
LICENSEE shall promptly notify UFRFI and LICENSEE and/or its
sublicensees shall have the sole right, in its discretion, to control
the defense of such suit at its own expense. UFRFI shall have the right
to be represented by its own counsel at its own expense. If LICENSEE
and/or its sublicensees do not elect within sixty (60) days of receiving
notice to control the defense of such suit, UFRFI may undertake such
control at its own expense and LICENSEE and/or its sublicensees shall
have the right to be represented by its own counsel at its own expense.
The parties shall cooperate fully in the defense of such suit. The party
financing the suit shall consult with and consider the interests of the
other, and may not settle any part of the suit or otherwise consent to
an adverse judgment in such suit that diminishes the rights or interests
of the non-financing party, including any interpretation of Patent
Rights, without the express written consent of the non-financing party.
ARTICLE VIII - PRODUCT LIABILITY
8.1. LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold UFRFI and the University, their
trustees, officers, employees and affiliates, harmless against all
claims and expenses, including legal expenses and reasonable attorneys'
fees whether arising from a third party claim or resulting from UFRFI's
enforcing this indemnification clause against LICENSEE, or arising out
of the death of or injury to any person or persons or out of any damage
to property and against any other claim, proceeding, demand, expense and
liability of any kind whatsoever resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of the
Licensed Product(s) or Licensed Process(es) or arising from any
obligation of LICENSEE hereunder. LICENSEE's indemnification under this
Paragraph 8.1 shall not apply to any liability, damage, loss or expense
to the extent that it is attributable to the intentional wrongdoing or
intentional misconduct of UFRFI and the University, their trustees,
officers, employees and affiliates.
8.2. In the event any such action is commenced or claim made or threatened
against UFRFI or other indemnitees whom
13
<PAGE>
LICENSEE is obligated to indemnify or hold harmless, UFRFI or the other
indemnitees shall promptly notify LICENSEE of such event. LICENSEE shall
have the right to participate in the defense of that part of any such
claim or action commenced or made against UFRFI (or other indemnitees)
which relates to LICENSEE's indemnification, and LICENSEE shall not be
liable to UFRFI or other indemnitees in account of any settlement of any
such claim or litigation affected without a LICENSEE's consent, which
consent shall not be unreasonably withheld or delayed.
8.3. As of the first commercial sale of a Licensed Product or first
commercial use of a Licensed Product, LICENSEE and/or sublicensees shall
obtain, and carry in full force and effect, liability insurance which
shall protect LICENSEE and UFRFI in regard to events covered by
Paragraph 8.1 above.
8.4. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS,
ISSUED OR PENDING.
ARTICLE IX - EXPORT CONTROLS
LICENSEE hereby agrees that it shall not sell, transfer, export or
re-export any Licensed Products or Licensed Processes 13 or related information
in any form, or any direct products of such information, except in compliance
with all applicable laws, including the export laws of any U.S. government
agency and any regulations thereunder, and will not sell, transfer, export or
re-export any such Licensed Products or Licensed Processes or information to any
persons or any entities with regard to which there exist grounds to suspect or
believe that they are violating such laws. LICENSEE shall be solely responsible
for obtaining all licenses, permits or authorizations required from the U.S. and
any other government for any such export or re-export. To the extent not
inconsistent with this Agreement, UFRFI agrees to provide LICENSEE with such
assistance as it may reasonably request in obtaining such licenses, permits or
authorization.
ARTICLE X - NON-USE OF NAMES
LICENSEE and UFRFI shall not use each others names nor the names of any
of either institution's employees, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from the other party in each case, except that LICENSEE and UFRFI may
state that such license is in effect.
ARTICLE XI - ASSIGNMENT
This Agreement is not assignable and any attempt to do so
14
<PAGE>
shall be void except in the case of a transfer of substantially all of the
assets of one of the parties hereto. This Agreement shall bind the parties,
their successors resulting from merger, and their permitted assigns.
ARTICLE XII - TERM AND TERMINATION
12.1. Unless earlier terminated as hereinafter provided, this Agreement shales
remain-in full force and effect until the last to expire of any patent
claim included in the Licensed Products.
12.2. If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by UFRFI.
12.3. Should LICENSEE fail to pay UFRFI royalties due and payable hereunder,
UFRFI shall have the right to terminate this Agreement on thirty (30)
days' notice, unless LICENSEE shall pay UFRFI within the thirty (30) day
period, all such royalties and interest due and payable. Upon the
expiration of the thirty (30) day period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights,
privileges and license granted hereunder shall terminate.
12.4. Upon any material breach or default of this Agreement by LICENSEE, other
than those occurrences set out in Paragraphs 12.2 and 12.3 above, which
shall always take precedence in that order over any material breach or
default referred to 14 in this Paragraph 12.4, UFRFI shall have the
right to terminate this Agreement and the rights, privileges and license
granted hereunder by ninety (90) days notice to LICENSEE. Such
termination shall become effective unless LICENSEE shall have cured or
commenced good faith remedial action acceptable to UFRFI any such breach
or default prior to the expiration of the ninety (90) day period. If
UFRFI terminates this Agreement pursuant to the terms hereof, the
Research Agreement shall concurrently terminate on the effective date of
termination of this Agreement, and the Research Agreement shall be
terminated in accordance with Paragraph 4.2 and Article X of the
Research Agreement.
12.5. LICENSEE shall have the right to terminate this Agreement at any time on
six (6) months' written notice to UFRFI, and upon payment of all amounts
due UFRFI through the effective date of the termination.
12.6. UFRFI may terminate this Agreement upon the occurrence of the third
separate default by LICENSEE within any consecutive three (3) year
period for failure to pay royalties when due.
12.7. Upon termination of this Agreement for any reason, nothing herein shall
be construed to release either party from any
15
<PAGE>
obligation that matured prior to the effective date of such termination.
LICENSEE and any sublicensee thereof may, however, after the effective
date of such termination, sell all Licensed Products, and complete
Licensed Products in the process of manufacture at the time of such
termination and sell the same, provided that LICENSEE shall pay to UFRFI
the royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of
Licensed Products.
12.8. Upon termination of this Agreement, any sublicensee not then in default
or in threat of default as documented by reports as per Section 5.2
shall have the right to seek a license from UFRFI.
12.9. BANKRUPTCY.
(a) Notice of Assumption of Rejection.
(i) In the event that either party files or has filed against
it a petition under the Federal Bankruptcy Code (11 U.S.C. Sections 1,
ET SEQ.) (the "Bankruptcy Code"), is adjudged bankrupt, or files or has
filed against it a petition for reorganization or arrangement under any
law relating to bankruptcy or similar laws for the protection of
debtors, whether under the laws of the United States and its political
subdivisions or otherwise, such party shall (1) notify the other party
thereof within ten (10) days after the filing of such petition or such
adjudication, and (2), within thirty (30) days after the filing of such
petition, shall notify the other party of the party's assumption or
rejection of this Agreement, and shall file a petition with the
appropriate court for approval of all other action as may be necessary
to obtain the approval of such petition and of such assumption of
rejection.
(ii) If such party does not: (1) within thirty (30) days
after the occurrence of any of the foregoing events, notify the other
party of its assumption or rejection of this Agreement or file the
petition, or (2) thereafter diligently take all other action necessary
for the approval of the foregoing petition or of such assumption or
rejection, such party shall be deemed to have rejected this Agreement.
Each party acknowledges that, for purposes of Section 365 of the
Bankruptcy Code and similar provisions of any other or future similar
laws relating to any party's assumption or rejection of any executory
contract, a period of thirty (30) days after the date of any filing or
adjudication described above shall constitute a reasonable time in which
such party shall assume or reject this Agreement and a party shall be
deemed to have not diligently taken all action necessary for the
approval of the foregoing petition or of such
16
<PAGE>
assumption or rejection if such petition, assumption or rejection is not
approved by the-appropriate court within sixty (60) days after the
filing of the petition for such assumption or rejection.
(b) Conditions to Assumption.
No election by any party, or any successor-in-interest to such
party, to assume this Agreement as contemplated by paragraph
(a) above shall be effective unless each of the following
conditions, each of which each party acknowledges is
commercially reasonable in the context of a bankruptcy or
similar proceeding, has been satisfied by such party and each
of the other parties has acknowledged such satisfaction in
writing:
(1) CURE. Such party has cured, or has provided the other
party adequate assurances that:
(A) Monetary Defaults. Within ten (10) days from
the date of such assumption such party will
cure all monetary defaults under this
Agreement; and
(B) Non-Monetary Defaults. Within thirty (30)
days from the date of such assumption such
party will cure all non-monetary defaults
under this Agreement.
(2) PECUNIARY LOSS. Such party has compensated or has
provided to the other party adequate assurances that
within ten (10) days from the date of assumption the
other party will be compensated for any pecuniary loss
incurred by the party arising from any default of such
party under this Agreement prior to the assumption.
(3) FUTURE PERFORMANCE. Such party has provided the other
party with adequate assurances of the future
performance of such party's obligations under this
Agreement.
(c) Termination.
This Agreement shall terminate upon the rejection of this
Agreement as contemplated by this Paragraph by any party or
successor-in-interest thereto.
17
<PAGE>
(d) No Transfer.
Neither any party's interest in this Agreement nor any portion
thereof shall pass to any trustee, receiver, or assignee for
the benefit of creditors, or any other person or entity or
otherwise by operation of law under the Bankruptcy Code or the
insolvency laws of any state having jurisdiction of the person
or property of such party unless the other party shall consent
to such transfer in writing.
ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, postage prepaid, or facsimile with confirmation,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
In the case of UFRFI:
President
University of Florida Research Foundation, Inc.
223 Grinter Hall
Gainesville, Florida 32611
Facsimile: (352) 392-9605
With a copy to:
Director
Office of Technology Licensing
186 Grinter Hall
Gainesville, Florida 32611
Facsimile: (352) 392-6600
All payments to:
Business Office
University of Florida Research Foundation, Inc.
109 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
18
<PAGE>
In the case of LICENSEE:
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, Massachusetts 02142
Facsimile: (617) 492-0084
With a copy to:
Bromberg & Sunstein
125 Summer Street
Boston, MA 02110-1618
Facsimile: (617) 433-0004
ARTICLE XIV - ARBITRATION
14.1. Any controversy or claim arising out of, or relating to, any provisions
of this Agreement or the breach thereof which cannot otherwise be
resolved by good faith negotiations between the parties shall be
resolved by final and binding arbitration under the rules of the
American Arbitration Association, or the Patent Arbitration Rules if
applicable, then obtaining.
14.2. Notwithstanding the foregoing, nothing in this Article XIV shall be
construed to waive any rights or timely performance of any obligations
existing under this Agreement.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1. The parties hereto acknowledge that this Agreement sets forth the entire
Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change of modification
except by the execution of a written instrument subscribed to by the
parties hereto.
15.2. The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
15.3. LICENSEE agrees to mark the Licensed Products sold in the United States
with all applicable United States patent numbers. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner
as to conform with the patent laws and practice of the country of
manufacture or sale.
15.4. The failure of either party to assert a right hereunder or
19
<PAGE>
to insist upon compliance with any term or condition of this Agreement
shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other
party.
15.5. The parties adopt and incorporate Article VII, the confidentiality
section of the attached Research Agreement, as though incorporated
herein.
15.6. For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. Neither party
shall have authority to make any statements, representations or
commitments of any kind, or to take any action, that will be binding on
the other party.
15.7. This Agreement may be signed in counterparts which collectively shall
constitute a single agreement.
15.8. Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder,
if that delay or failure is caused by strikes, acts of God or the public
enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for materials, or
any fault beyond its control or without its fault or negligence.
15.9. The parties each, at any time or from time to time, shall execute and
deliver or cause to be delivered such further assurances, instruments or
documents as may be reasonably necessary to fulfill the terms and
conditions of this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this Agreement the day and year set forth below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By /s/ Ronald M. Kudla
--------------------------------
Name: Ronald M. Kudla
Title: Director of Licensing
Date: 10/15/96
APOLLO GENETICS, INC.
By /s/ Katherine Gordon
--------------------------------
Name Katherine Gordon, PhD
Title President
Date 10/15/96
21
<PAGE>
Exhibit A
UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS
<TABLE>
<CAPTION>
Application/
Country/region Serial Number Filing Date Title Status
- -------------- ------------- ----------- ----- ------
<C> <C> <C> <C> <C>
[ * ]
</TABLE>
[ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
EXHIBIT B
CORPORATE
RESEARCH AGREEMENT
TO ACCOMPANY LICENSE AGREEMENT
See Exhibit 10.10 to the Registration Statement
<PAGE>
CORPORATE
RESEARCH AGREEMENT
TO ACCOMPANY LICENSE AGREEMENT
This AGREEMENT entered into this 15th day of December, 1993 (the "Effective
Date"), by and between APOLLO GENETICS, INC., a corporation duly organized under
the laws of the State of Delaware and having its principal office at 222 Third
Street, Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as
"Sponsor") and the UNIVERSITY OF FLORIDA, a non-profit educational institution
of the State of Florida located in Gainesville, Florida (hereinafter referred to
as the "University").
W I T N E S S E T H:
WHEREAS, Sponsor desires the research assistance of certain technically
qualified persons having access to certain facilities and equipment;
WHEREAS, Sponsor desires to fund said research entitled [ * ] attached
hereto as Appendix 1;
WHEREAS, Sponsor has entered into a License Agreement with the University
of Florida Research Foundation, Inc. ("UFRFI") dated December 15, 1993 for all
fields of use. UFRFI and University have agreed that the research described
herein shall be funded through and conducted by University;
WHEREAS, University is willing to cooperate with and assist Sponsor by
furnishing such personnel, and facilities as may be required;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agrees as follows:
I. DEFINITIONS:
As used herein, the following terms shall have the following meanings:
1.1 "Project Description" shall mean the description of the project as
described in Appendix 1 hereof.
1.2 "Project Work" shall mean the research work as described in
Appendix 1 hereof to be performed by University and its Principal
Investigator, James W. Simpkins, Ph.D., under this Agreement.
* Confidential treatment has been requested for marked portion
1
<PAGE>
1.3 "Contract Period" is for a period of three (3) years, commencing from
the Effective Date, during which the University shall perform the Project Work.
1.4 "Principal Investigator" shall mean the individual designated by
University to implement and oversee all aspects and components of the Project
Work and to serve as University's liaison with Sponsor's designated
representative.
1.5 "Researcher(s)" shall mean individually and collectively the Principal
Investigator, graduate students, other professional personnel and/or other
employees of University participating in the actual performance of the Project
Work.
1.6 "Sponsor" shall mean the LICENSEE defined and described in the License
Agreement between LICENSEE and UFRFI.
1.7 "License Agreement" shall mean that certain License Agreement dated
December 15, 1993 to which this Research Agreement is attached.
II. RESEARCH WORK
2.1 University shall commence the performance of the Project Work promptly
after the Effective Date of this Agreement, and shall use its diligent efforts
to complete such Project Work substantially in accordance with the terms and
conditions of this Agreement. Anything in this Agreement to the contrary
notwithstanding, Sponsor and University may at any time enter into written
agreements to make changes to and amend the Project Description provided,
however, that such changes or amendments do not change the nature of the
project; are approved by UFRFI; and, further provided that budgetary allocations
set forth in Appendix 1 hereof covering the Project Work to be performed
hereunder shall be augmented as necessary to cover any additional costs to
University resulting from such changes or amendments.
2.2 Sponsor's designated representative shall be Katherine Gordon, Ph.D.
or such other representative as Sponsor may from time to time designate.
University's Principal Investigator shall be [ * ] Ph.D. or such
other representative as University may designate with the prior written approval
of Sponsor.
III. REPORTS AND CONFERENCES
3.1 University's Principal Investigator shall make up to four (4) oral
reports each year as requested by Sponsor and shall submit written
progress/program reports on a yearly basis and as specific phases of work are
completed. A final report shall be submitted by University within forty five
(45) days of the conclusion of the Contract Period, or early termination of this
Agreement.
3.2 If necessary, during the term of this Agreement, representatives of
the University will meet the representatives of Sponsor at times and places
mutually agreed upon to discuss the
* Confidential treatment has been requested for marked portion
2
<PAGE>
progress and results, as well as ongoing plans, or changes therein, of the
Project Work to be performed hereunder.
IV. COSTS, BILLINGS AND OTHER SUPPORT
4.1 It is agreed to and understood by the parties hereto that, subject
to Section 2, total costs to Sponsor hereunder shall not exceed the sum of
[ * ] Dollars ($[ * ]). These costs shall be allocated as set forth in
Appendix 1 attached hereto for use in the Project Work.
4.2 Anything herein to the contrary notwithstanding, should this Agreement
be subject to early termination pursuant to Section 10 hereof, Sponsor shall pay
all costs accrued by University as of the date of termination, provided,
however, that Sponsor shall reimburse University for non-cancelable obligations,
which shall include all non-cancelable contracts and postdoctoral associate
appointments called for in the Project Description, Appendix 1 incurred prior to
the effective date of termination. After termination, any obligation of Sponsor
for postdoctoral associates shall end no later that the end of the University's
fiscal year following termination.
V. PUBLICITY
5.1 Sponsor will not use the name of the University, nor of any member of
the University's technical staff, in any publicity, advertising or news release
without the prior written approval of an authorized representative of the
University; provided, however, that Sponsor may (a) refer to publications by
employees of University in scientific literature, or (b) state that Sponsor is
sponsoring research at University. The University will not use the name of
Sponsor, nor any employee of Sponsor, in any publicity without the prior written
approval of Sponsor.
VI. PUBLICATIONS
6.1 Sponsor recognizes that under University academic policy, the results
of a University research project must be publishable and agrees that Researchers
engaged in the Project Work shall be permitted to prevent at symposia, national
or regional professional meetings and to publish in journals, theses or
dissertations, or otherwise of their own choosing, methods and results of
Project Work, provided, however, that Sponsor shall have been furnished copies
of any proposed publication or presentation at least sixty (60) days in advance
of the submission of such proposed publication or presentation to a journal,
editor or other third party. Sponsor shall have thirty (30) days, after receipt
of said copies, to object to such proposed presentation or proposed publication
either because there is patentable subject matter which needs protection and/or
there is Confidential Information (as later defined herein) of Sponsor contained
in the proposed publication or presentation. In the event that Sponsor makes
such objection, the said Researcher(s) shall refrain from making such
publication or presentation for a maximum of three (3) months in order for
Sponsor
3
* Confidential treatment has been requested for marked portion
<PAGE>
to file patent application(s) with the United States Patent and Trademark Office
and/or foreign patent office(s) directed to the patentable subject matter
contained in the proposed publication or presentation.
VII. CONFIDENTIALITY
7.1 Anything in this Agreement to the contrary notwithstanding, any and
all knowledge, know-how, practices, process or other information of any kind and
in any form (hereinafter referred to as "Confidential Information") disclosed or
submitted, either orally, in writing or in other tangible or intangible form
which is designated as Confidential Information, to either party by the other
shall be received and maintained by the receiving party in strict confidence and
shall not be disclosed to any third party. Furthermore, neither party shall use
the said Confidential Information for any purpose other than those purposes
specified in this Agreement. The parties may disclose Confidential Information
to the minimum number of its employees reasonably requiring access thereto for
the purposes of this Agreement provided, however, that prior to making any such
disclosures each such employee shall be apprised of the duty and obligation to
maintain Confidential Information in confidence and not to use such information
for any purpose other than in accordance with the terms and conditions of this
Agreement. The University warrants that any and all Researchers conducting
research under and supported by this Agreement shall sign a participation
agreement substantially similar in content to the form attached hereto and
incorporated herein by reference as Appendix 2.
7.2 Nothing contained herein will in any way restrict or impair either
parties right to use, disclose, or otherwise deal with any Confidential
Information which at the time of its receipt:
7.2.1 Is generally available in the public domain, or thereafter
becomes available to the public through no act of the receiving party; or
7.2.2 Was independently known prior to receipt thereof, or made
available to such receiving party as a matter of lawful right by a third party.
VIII. INVENTIONS, IMPROVEMENTS AND DISCOVERIES
8.1 University will promptly notify Sponsor of any University Inventions
conceived and/or made during the Contract Period under Project Work funded by
Sponsor or such shorter time if there is an early termination.
8.2 All rights and title to University Inventions arising under the
Project Work shall belong to University and shall be subject to the terms and
conditions of this Agreement and the License Agreement.
4
<PAGE>
8.3 All rights and title to Joint Inventions arising under the Project
Work shall belong jointly to Sponsor and University and shall be subject to the
terms and conditions of this Agreement and the License Agreement.
8.4 Rights to inventions, improvements and/or discoveries, whether
patentable or not, relating to Project Work made solely by employees of Sponsor
shall belong to Sponsor, and such invention, improvements and/or discoveries
shall not be subject to the terms and conditions of this Agreement, but shall be
subject to the terms and conditions of the License Agreement.
IX. PATENTS AND PATENT APPLICATIONS
9.1 All rights to University Inventions will be assigned by University to
UFRFI.
X. TERM AND TERMINATION
10.1 This Agreement shall become effective upon the date first hereinabove
written and shall continue in effect for the full duration of the Contract
Period unless sooner terminated in accordance with the provisions of this
Section 10. The parties hereto may, however, pursuant to Section 2.1, extend
the term of this Agreement for additional periods as desired under mutually
agreeable terms and conditions which the parties reduce to writing and sign.
10.2 In the event that either party hereto shall commit any breach of or
default in any of the terms or conditions of this Agreement, and also shall fail
to remedy such default or breach within sixty (60) days after receipt of written
notice thereof from the other party hereto, the party giving notice may, at its
option and in addition to any other remedies which it may have at law or in
equity, terminate this Agreement by sending notice of termination in writing to
the other party to such effect, and such termination shall be effective as of
the date of the receipt of such notice.
10.3 Termination of this Agreement by either party for any reason shall not
affect the rights and obligations of the parties accrued prior to the effective
date of termination of this Agreement including, but not limited to, any license
or sublicense rights under the License Agreement. No termination of this
Agreement, however effectuated, shall release the parties hereto from their
rights and obligations under Section III, IV, V, VI, VII and VIII.
XI. MISCELLANEOUS
11.1 The parties recognize that inventions, copyrightable works and other
proprietary information may arise from research sponsored in whole or in part by
agencies of the federal government. The parties hereto agree that any such
developments
5
<PAGE>
shall be governed by the provisions of Public Law 96-517, or as amended, during
the term of this Agreement.
11.2 In the performance of all services hereunder:
11.2.1 University shall be deemed to be and shall be an independent
contractor and as such University shall not be entitled to any benefits
applicable to employees of Sponsor;
11.2.2 University shall comply with all governmental laws and
regulations, such as EPA, OSHA and like regulations, which are applicable to the
University and its performance of the Project Work hereunder;
11.2.3 Neither party is authorized or empowered to act as agent or
the other for any purpose and shall not on behalf of the other enter into any
contract, warranty or representation as to any matter. Neither shall be bound
by the acts or conduct of the other.
XII. INDEMNITY/INSURANCE
12.1 University warrants and represents that, as part of the State of
Florida, University is self-funded for liability insurance under Chapter 284,
FLORIDA STATUTES, such protection being applicable to officers, employees and
agents while acting within the scope of their employment by University and
University has no liability insurance policy as such that can extend protection
to any other person.
12.2 Each party hereby assumes any and all risks of personal injury and
property damage attributable to the negligent acts or omissions of that party
and the officers, employees and agents thereof.
12.3 The parties further agree that nothing contained herein shall be
construed or interpreted as denying to either party any remedy or defense
available to such party under the laws of the State of Florida; the consent of
the State of Florida or its agents and agencies to be sued by reason hereon; or
as a waiver of sovereign immunity of the State of Florida beyond the waiver
provided in Section 768.28, FLORIDA STATUTES (1991).
XIII. GOVERNING LAW
This agreement shall be governed and interpreted in accordance with the
internal law of the State of Florida without regard to its conflict of laws.
XIV. ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be void
except in the case of a transfer of substantially all of the assets of one of
the parties hereto. This Agreement shall
6
<PAGE>
bind the parties, their successors resulting from merger, and their permitted
assigns.
XV. AGREEMENT MODIFICATION
Any agreement changing the terms of this Agreement in any way shall be void
only if the change is made in writing and approved by authorized representatives
of the parties hereto.
XVI. NOTICES
Notices, invoices, communications and payments hereunder shall be deemed
made if given by registered or certified mail, postage prepaid, and addressed to
the party to receive such notice, invoice or communication at the address given
below, or such other address as may hereafter be designated by notice in
writing:
If to Sponsor:
Katherine Gordon, Ph.D.
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, MA 02142
If to University:
Karen A. Holbrook, Ph.D.
Vice President for Research
Dean, Graduate School
University of Florida
Office of Research and Graduate Education
223 Grinter Hall
Gainesville, FL 32611-2037
Technical Matter:
[*]
Payments shall be made in United States dollars to the University of
Florida at the address first indicated hereinabove. The date of giving any
notice, invoice or other communication, and the date of making any such payment,
provided that such payment is received, shall be the date on which such envelope
is deposited with the appropriate U.S. Post Office. The postal service receipt
showing the date of such deposit shall be PRIMA FACIE evidence of these facts.
* Confidential treatment has been requested for marked portion
7
<PAGE>
XVII. INDEPENDENT CONTRACTORS
For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. Neither party shall have
authority to make any statements, representations or commitments of any kind, or
to take any action, that will be binding on the other party.
XVIII. FORCE MAJEURE
Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder, if that
delay or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities, compliance with
governmental priorities for materials, or any fault beyond its control or
without its fault or negligence.
XIX. ENTIRE AGREEMENT
This Agreement represents the entire understanding between the parties, and
supersedes and merges all understanding between the parties, and supersedes and
merges all other agreements, express or implied, discussions or understandings
between the parties with respect to the subject matter hereof. It shall be
interpreted in conjunction and consistent with the License Agreement to which
this is an Exhibit.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused these presents to be executed
in duplicate as of the day and year first above written.
APOLLO GENETICS, INC. UNIVERSITY OF FLORIDA
/s/ Katherine Gordon /s/ Karen A. Holbrook
- -------------------------- -----------------------
By: Katherine Gordon, Ph.D By:
Title: President Title:
/s/ Niles Sutphin /s/ Marilyn A. Ritter
- -------------------------- -----------------------
Witness Witness
9
<PAGE>
Appendix 1
PROJECT WORK AND BUDGET
SPONSORED PROJECT TITLE: [ * ]
OVERALL PROGRAM OBJECTIVE: [ * ]
SPECIFIC AIMS:
[ * ]
PROGRAM DESCRIPTION: [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
Appendix 1
PROJECT WORK AND BUDGET (con't)
Year 1
[ * ]FTE Technician. . . . . . . . . . . . . . . . . . . . $[ * ]
Supplies for the evaluation of 6 steroids
(culture media, plastic ware, stains, cells,
antibiotics, disinfectants, etc.. . . . . . . . . . . . $ [ * ]
-------
Total Year 1 budget (direct). . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
Year 2
[ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ]
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
-------
Total Year 2 budge (direct) . . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
Year 3
[ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ]
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
Animal purchase and maintenance . . . . . . . . . . . . . $ [ * ]
-------
Total Year 3 budget (direct). . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
Appendix 2
PARTICIPATION AGREEMENT
The University of Florida ("University") and Apollo Genetics, Inc.
("Sponsor") have entered into a corporate research agreement ("Research
Agreement") in which Sponsor granted to University and University accepted, a
research grant to support certain investigations (the "Sponsored Activity").
University agrees to certain obligations to Sponsor with respect to rights in
inventions, copyrightable subject-matter and other developments of a proprietary
nature that arise in connection with the Sponsored Activity. As a condition of
my participating in the Sponsored Activity and in consideration therewith, and
to enable University to fulfill its obligations to the Sponsor, I hereby agree
as follows:
1. The Sponsor shall have all rights with respect to any and all
[DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my
participation in the Sponsored Activity and income derived therefrom to which it
is entitled under the terms of the Research Agreement, including such rights in
any invention, improvements, discovery or innovation, whether or not patentable,
conceived or first actually reduced to practice by me, solely or jointly with
others, in the course of, in connection with or as a result of the Sponsored
Activity. I will execute all documents and do all acts, but without expense to
me, necessary or proper to effectuate such rights or determinations of the
Sponsor, and I will not claim or assert rights inconsistent with Sponsor's
rights.
2. Any and all knowledge, know-how, practices, process or other
information of any kind and in any form (hereinafter referred to as
"Confidential Information") disclosed or submitted, either orally, in writing or
in other tangible or intangible form which is designated as Confidential
Information, to me by the Sponsor shall be received and maintained by me in
strict confidence and shall not be disclosed to any third party. Furthermore, I
shall not use the Confidential Information for any purpose other than those
purposes specified in the Sponsored Activity.
3. The principal investigator of the Sponsored Activity shall insure that
each participant signs a participation agreement in the form of this one.
Signed: /s/ James W. Simpkins
Typed or Printed Name: James W. Simpkins
Date: 1-3-94
<PAGE>
Appendix 2
PARTICIPATION AGREEMENT
The University of Florida ("University") and Apollo Genetics, Inc.
("Sponsor") have entered into a corporate research agreement ("Research
Agreement") in which Sponsor granted to University and University accepted, a
research grant to support certain investigations (the "Sponsored Activity").
University agrees to certain obligations to Sponsor with respect to rights in
inventions, copyrightable subject-matter and other developments of a proprietary
nature that arise in connection with the Sponsored Activity. As a condition of
my participating in the Sponsored Activity and in consideration therewith, and
to enable University to fulfill its obligations to the Sponsor, I hereby agree
as follows:
1. The Sponsor shall have all rights with respect to any and all
[DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my
participation in the Sponsored Activity and income derived therefrom to which it
is entitled under the terms of the Research Agreement, including such rights in
any invention, improvements, discovery or innovation, whether or not patentable,
conceived or first actually reduced to practice by me, solely or jointly with
others, in the course of, in connection with or as a result of the Sponsored
Activity. I will execute all documents and do all acts, but without expense to
me, necessary or proper to effectuate such rights or determinations of the
Sponsor, and I will not claim or assert rights inconsistent with Sponsor's
rights.
2. Any and all knowledge, know-how, practices, process or other
information of any kind and in any form (hereinafter referred to as
"Confidential Information") disclosed or submitted, either orally, in writing or
in other tangible or intangible form which is designated as Confidential
Information, to me by the Sponsor shall be received and maintained by me in
strict confidence and shall not be disclosed to any third party. Furthermore, I
shall not use the Confidential Information for any purpose other than those
purposes specified in the Sponsored Activity.
3. The principal investigator of the Sponsored Activity shall insure that
each participant signs a participation agreement in the form of this one.
Signed: /s/ Jean Bishop
Typed or Printed Name: Jean Bishop
Date: 1-3-94
* Confidential treatment has been requested for marked portion
<PAGE>
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES:
I DEFINITION
I GRANT
III DUE DILIGENCE
IV ROYALTIES
V REPORTS AND RECORDS
VI PATENT PROSECUTION
VII INFRINGEMENT
VIII PRODUCT LIABILITY
IX EXPORT CONTROLS
X NON-USE OF NAMES
XI ASSIGNMENT
XII TERM AND TERMINATION
XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
XIV ARBITRATION
XV MISCELLANEOUS PROVISIONS
This Agreement is made and entered into this 8th day of September, 1994,
(the Effective Date) by and between THE UNIVERSITY OF FLORIDA RESEARCH
FOUNDATION, INC., a not-for-profit corporation duly organized and existing under
the laws off the State of Florida; and having its principal of five at 223
Grinter Hall, Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to
UFRFI), and APOLLO GENETICS, INC., a corporation duly organized under the laws
of the State of Delaware and having its principal office at 222 Third Street,
Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as
LICENSEE).
WITNESSETH
WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later defined
herein) by assignment from the University of Florida (hereinafter referred to
as University) relating to UFRFI Case No. 1229 entitled "ESTROGEN
RESPONSIVENESS DIAGNOSTIC," invented by James W. Simpkins, PhD, and invented
in-part by Jean Bishop, filed in the United States Patent and Trademark
Office on September 8, 1994, and has the right to grant licenses under said
Patent Rights;
<PAGE>
WHEREAS, UFRFI desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder, subject only to a
royalty-free, non-exclusive license to be granted to the United States
government, as required by law;
WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into
this Agreement, that LICENSEE is familiar with the development, production,
manufacture, marketing and sale of products similar to the "Licensed Product(s)"
(as later defined herein) and/or the use of the "Licensed Process(es)" (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights commercially so that public
utilization and royalty income to UFRFI shall result therefrom;
WHEREAS, LICENSEE desires to obtain a license from UFRFI under the Patent
Rights upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the following meaning:
1.1 "LICENSEE" shall mean all of the following:
(a) a related company of LICENSEE, the voting stock of which is
directly or indirectly at least fifty percent (50%) owned or
controlled by LICENSEE;
(b) an organization which directly or indirectly controls more than
fifty percent (50%) of the voting stock of LICENSEE;
(c) an organization, the majority ownership of which is directly or
indirectly common to the ownership of LICENSEE.
1.2 "Patent Rights" shall mean all of the following UFRFI intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Exhibit A;
(b) United States and foreign patents issued from the applications
listed in Exhibit A and from divisionals and continuations of
these applications;
(c) U.S. continuation-in-part applications and foreign
continuation-in-part applications, and the resulting patents,
based on the U.S. and foreign applications listed in Exhibit A;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically
described in the United
2
<PAGE>
States patents and/or patent applications described in (a), (b),
or (c) above;
(e) any reissues of United States patents described in (a), (b), (c),
or (d) above.
1.3 A "Licensed Product" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in the Patent Rights in the country in
which any Licensed Products is made, used or sold;
(b) is manufactured by using a process which is covered in whole or
in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in the country in which any
Licensed Process is used in which such product or part thereof is
used or sold;
(c) is derived from Patent Rights, Know-How (as later defined
herein), and/or trade secrets related to or described in Patent
Rights;
(d) is sold, manufactured or used in any country under this
Agreement.
1.4 A "Licensed Process" shall mean:
(a) any process which is covered in whole or in part by an issued,
unexpired claim or a pending claim contained in the Patent
Rights;
(b) is derived from Patent Rights, Know-How, and/or trade secrets
related to or described in Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.5 "Net Sales" shall mean LICENSEE's billings, for Licensed Products and
Licensed Processes produced hereunder invoiced to independent third
parties less the sum of the following:
[ * ]
Licensed Products shall be considered "sold" when payment is received by
LICENSEE. [ * ]
* Confidential treatment has been requested for marked portion
3
<PAGE>
1.6 "Know-How" shall mean any and all technical data, information, or
knowledge which relate to the Licensed Product, the Licensed Process
or the manufacture, marketing, registration, purity, quality, potency,
safety, and efficacy of the Licensed Product or Licensed Process.
1.7 "University Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or
unpatentable, which are conceived and/or made by one or more employees
of University. For the purposes of this Paragraph, the "making" of
inventions shall be governed by U.S. laws of inventorship.
1.8 "Joint Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or
unpatentable, which are conceived and/or made jointly by personnel of
University (including faculty and employees) and of LICENSEE. For the
purposes of this Paragraph, the "making" of inventions shall be
governed by U.S. laws of inventorship.
1.9 "University Patents" shall mean collectively and individually any and
all United States and foreign patent applications and any and all
issued United States Letters Patents and foreign patents owned by
University which pertain to University Inventions under this
Agreement.
1.10 "Joint Patents" shall mean collectively and individually any and all
United States and foreign patent applications and any and all issued
United States Letter Patents and foreign patents jointly owned by
LICENSEE and University under this Agreement.
1.11 "Non-Affiliated Third Party Sublicensee" shall mean any sublicensee
company or organization not related to or controlled by LICENSEE.
1.12 "Sublicense Income" shall mean the net royalties (including advanced
royalties or "lump-sum" payments) actually received by LICENSEE from
Non Affiliated Third Party Sublicensee under the license herein
granted, after the deduction of all reasonable legal costs, documented
by credible written evidence provided to UFRFI, actually incurred by
LICENSEE in connection with the negotiation and procurement of the
pertinent sublicenses.
ARTICLE II- GRANT
2.1 UFRFI hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the Licensed Products, and to practice the
Licensed Processes throughout the world in any and all fields of use
to the end of the term for which the Patent Rights are granted unless
sooner terminated according to the terms
4
<PAGE>
hereof, subject to the non-exclusive licensed granted to the United
States Government.
2.2 In order to establish exclusivity for LICENSEE, UFRFI hereby agrees
that it shall not grant any other license to make, have made, use,
lease and sell Licensed Products or to utilize Licensed Processes
throughout the world in any and all fields of use during the period of
time commencing with the Effective Date of this Agreement and
terminating with the expiration of this Agreement.
2.3 UFRFI reserves the right to practice under the Patent Rights for its
own noncommercial research purposes.
2.4 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. However,
Licensee shall notify UFRFI in writing of the initiation of license
negotiations with all potential Non-Affiliated Third Party
Sublicensees.
2.5 LICENSEE hereby agrees that every Non-Affiliated Third Party
Sublicensee agreement to which it shall be a party and which shall
relate to the rights, privileges and license granted hereunder shall
contain a statement setting forth the date upon which LICENSEE's
exclusive rights, privileges and license hereunder shall terminate.
LICENSEE agrees that any sublicense granted hereunder shall provide
that the obligations to UFRFI under Article I (Definitions), II
(Grants), V (Reports and Records), VII (Infringement), VIII (Product
Liability), IX (Export Controls), X (Non-Use of Names), XII (Term and
Termination), XIV (Arbitration), and XV (Miscellaneous Provisions) of
this Agreement shall be binding on upon the sublicensee as if it were
a party to this Agreement. LICENSEE further agrees to attach copies of
such Articles to each sublicense agreement.
2.6 LICENSEE agrees to forward to UFRFI a copy of any and all
Non-Affiliated Third Party Sublicensee agreements within thirty (30)
days of the execution of such sublicensee agreements and further
agrees to forward to UFRFI annually a copy of such reports received by
LICENSEE from its sublicensees during the preceding twelve (12) month
period under the sublicenses as shall be pertinent to a royalty
accounting under said sublicense agreements.
2.7 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this
Agreement, without the express prior written permission of UFRFI.
2.8 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any
technology not specifically set forth herein; provided, however, that
LICENSEE shall have the exclusive right to negotiate with any
Non-Affiliated Third Party Sublicensee in connection with Know-How
resulting from any Licensed Product sublicensed by LICENSEE hereunder.
5
<PAGE>
2.10 Any patent applications made or patents issued from Joint Inventions
shall be filed in University's and LICENSEE's names, and the portion
thereof not made by University personnel shall belong to LICENSEE and
shall not be subject to the provisions of this Agreement. In
determining royalty rates in licenses to such patent applications or
patents resulting from the joint effort of LICENSEE and University,
there shall be taken into consideration the relative contributions of
the respective joint inventors of the invention.
2.11 Any controversy, dispute or claim arising out of, or relating to, any
provisions of this Paragraph 2 which cannot otherwise be resolved by
good faith negotiations between the parties shall be resolved by
arbitration in accordance with the provisions of Article XIV of this
Agreement.
2.12 LICENSEE agrees that for Licensed Products covered by Patent Rights
that are subject to the non-exclusive royalty-free license to the
United States government, such Licensed Products will be manufactured
substantially in the United States, in accordance with applicable
federal law.
2.13 LICENSEE further agrees that it shall abide by all rights and
limitations of U.S. Code Title 35, Chapter 38, and implementing
regulations thereof, for all patent applications and patents invented
in whole or in part with federal money.
ARTICLE III - DUE DILIGENCE
3.1 LICENSEE shall use diligent efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous
and diligent program for exploitation of the Patent Rights to attain
maximum commercialization of Licensed Products and Licensed Processes.
3.2 LICENSEE's failure to perform in accordance with Paragraph 3.1 above
shall be grounds for UFRFI to terminate this Agreement pursuant to
Paragraph 12.4 hereof.
ARTICLE IV - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to UFRFI in the manner hereinafter provided to the
end of the term of the Patent Rights or until this Agreement shall be
terminated as hereinafter provided:
(a) An annual License Maintenance Fee payable commencing on January
1, 1999 and on January 1 of each year thereafter; provided,
however, that such fee shall be waived for each year in which
LICENSEE milestones for such year have been achieved. The
LICENSEE milestones shall be the subject of mutual agreement and
are attached hereto and incorporated herein by reference as
Exhibit B. The first License Maintenance Fee shall be the sum of
[ * ] Dollars ($[ * ]), and each successive License
Maintenance Fee payable hereunder shall be increased by [ *
* Confidential treatment has been requested for marked portion
6
<PAGE>
* ] Dollars ($[ * ]) until the License Maintenance Fee is
[ * ] Dollars ($[ * ]). Thereafter, the License
Maintenance Fee shall be [ * ] Dollars ($[ * ]) per
year during the remainder of the term of this Agreement. The
License Maintenance Fee for a given year shall be creditable
against any Running Royalties subsequently due during said year
under subparagraph 4.1(b) below.
(b) Running Royalty in an amount equal to [ * ] ([ * ]%) of the Net
Sales of the Licensed Products of Licensed Processes used,
leased or sold by or for LICENSEE.
4.2 In the event LICENSEE grants any sublicenses to Non-Affiliated Third
Party Sublicensees during the term of this Agreement, then for each
such sublicense, LICENSEE shall pay UFRFI an additional royalty at the
rate of [ * ] percent ([ * ]%) of the Sublicense Income collected
by LICENSEE under such sublicense.
4.3 No multiple royalties shall be payable because any Licensed Product,
its manufacture, use, lease or sale are or shall be covered by more
than one Patent Rights patent application or Patent Rights patent
licensed under this Agreement.
4.4 Royalty payments shall be paid in United States dollars in
Gainesville, Florida or at such other place as UFRFI may reasonably
designate consistent with the laws and regulations controlling in any
foreign country. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion
shall be made by using the exchange rate prevailing at the Chase
Manhattan Bank (N.A.) on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
4.5 In the event the royalties set forth herein are higher than the
maximum royalties permitted by the law or regulations of a particular
country, the royalty payable for sales in such country shall equal to
the maximum permitted royalty under such law or regulations. Notice of
said event shall be provided to UFRFI. An authorized representative of
LICENSEE shall notify UFRFI, in writing, within thirty (30) days of
discovering that such royalties are approaching or have reached the
maximum amount, and shall provide UFRFI with written documentation
regarding the laws or regulations establishing such maximum.
4.6 In the event that any taxes, withholding or otherwise, are levied by
any taxing authority in connection with accrual or payment of any
royalties payable by LICENSEE under this Agreement, and LICENSEE
determines in good faith that it must pay such taxes, LICENSEE shall
have the right to pay such taxes to the local tax authorities on
behalf of UFRFI and payment of the net amount due after reduction by
the amount of such taxes, shall fully satisfy LICENSEE's royalty
obligations under this Agreement. LICENSEE shall provide UFRFI with
appropriate receipts or other documentation supporting such payment.
LICENSEE
* Confidential treatment has been requested for marked portion
7
<PAGE>
shall inform UFRFI in writing, within thirty (30) days of notification
that taxes will or have been levied by a taxing authority.
ARTICLE V - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of
showing the amounts payable to UFRFI hereunder. Said books of account
shall be kept at LICENSEE's principal place of business or the
principal place of business of the appropriate division of LICENSEE to
which this Agreement relates. Said books and the supporting data shall
be open to inspection on behalf of UFRFI upon reasonable notice during
reasonable business hours to the extent necessary for the purpose of
verifying LICENSEE's royalty statement or compliance in other respects
with this Agreement. Such inspection shall be made not more than often
than once each calendar year at the expense of UFRFI by a Certified
Public Accountant appointed by UFRFI and to whom LICENSEE has no
reasonable objection. LICENSEE shall not be required to retain such
records for more than five (5) years after the close of any calendar
half-year.
5.2 LICENSEE, within forty-five (45) days after June 30 and December 31,
of each year, shall deliver to UFRFI true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its
sublicensees during the preceding six-month period under this
Agreement as shall be pertinent to a royalty accounting hereunder.
These shall include at least the following;
(a) number of Licensed Products manufactured and sold.
(b) total billings for Licensed Products sold.
(c) accounting for all Licensed Processes used or sold.
(d) deductions applicable as provided in Paragraphs 1.5 and 1.13.
(e) total royalty due.
(f) names and addresses of all sublicensees of LICENSEE.
(g) A progress report on patent filings in each country, including
the serial number, name of patent application, name of inventors
and status of each patent application covering Licensed Products
or Licensed Processes.
5.3 With each such report submitted, LICENSEE shall pay to UFRFI the
royalties due and payable under this Agreement. If no royalties shall
be due, LICENSEE shall so report.
5.4 The royalty payments, license fees, and reimbursement for
patent-related expenses set forth in this Agreement shall, if overdue,
bear interest until payment at the
8
<PAGE>
monthly rate of one percent (1%). The payment of such interest shall
not foreclose UFRFI from exercising any other rights it may have as a
consequence of the lateness of any payment.
5.5 On or before the sixtieth (60th) day following the close of LICENSEE's
fiscal year, LICENSEE shall provide UFRFI with an audited financial
statement for the preceding fiscal year.
ARTICLE VI - PATENT PROSECUTION
6.1 LICENSEE shall, in the name of the University of Florida, apply for,
seek issuance of, and maintain during the term of this Agreement the
Patent Rights in the United States and in foreign countries. The
prosecution, filing and maintenance of all Patent Rights patents and
applications shall be the primary responsibility of LICENSEE. LICENSEE
shall seek patent extension for patents licensed under the Patent
Rights in the United States and in such foreign countries as may be
designated by LICENSEE, under such applicable laws and regulations
throughout such countries, where such patent extension rights are
available currently or are available in the future. LICENSEE shall
keep University advised as to all developments with respect to the
Patent Rights and shall supply to University copies of all
correspondence and papers received in connection therewith within ten
(10) business days of receipt or filing thereof. As required by law,
LICENSEE must provide all correspondence to and advise UFRFI in a
timely manner in order to permit UFRFI to comment on all actions
before they are taken by LICENSEE's patent counsel. All final
decisions with respect to prosecution of the Patent Rights are
reserved to UFRFI, as required by law.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the Patent Rights shall be the responsibility of
LICENSEE.
6.3 If LICENSEE directs that a patent application be filed on University
Inventions, LICENSEE shall promptly prepare, file and prosecute a
patent application or applications in the University's name, and/or
any pertinent continuation, continuation-in-part and/or reissue
application(s) thereof in the United States directed to such
University Inventions. University shall thereafter assign all such
University Inventions to UFRFI. LICENSEE shall bear all expenses
incurred in connection with such preparation, filing and prosecution
of U.S. and foreign patent application(s) and patents directed to
University Inventions. UFRFI shall cooperate with LICENSEE to assure
that such application or applications, and any such continuation,
continuation-in-part and/or reissue application(s) thereof will cover,
to the best of UFRFI's knowledge, all items of commercial interest and
importance. LICENSEE shall keep UFRFI advised as to all developments
with respect to such application or applications, and/or continuation,
continuation-in-part and reissue application(s) and shall supply to
UFRFI copies of all papers received within ten (10) business days of
receipt and in sufficient time for UFRFI to comment thereon. UFRFI
shall have the right to advise and
9
<PAGE>
cooperate with LICENSEE in such prosecution, and such advice shall not
be rejected unreasonably. All final decisions with respect to
prosecution of said application(s), and said continuation,
continuation-in-part and reissue applications, and selection of patent
counsel are reserved to UFRFI.
6.4 If LICENSEE elects not to exercise its option(s) pursuant to this
Agreement, or decides to discontinue the financial support of the
prosecution or maintenance of the protection of the Patent Rights in
the United States and in foreign countries, or is grossly negligent in
its prosecution or maintenance of the protection thereof, UFRFI shall
be free to file or continue prosecution or maintain any such
application(s), and to maintain any protection issuing thereon in the
U.S. and in any foreign country at UFRFI's sole expense.
ARTICLE VII - INFRINGEMENT
7.1 LICENSEE shall inform UFRFI promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any
available evidence thereof.
7.2 During the term of this Agreement, UFRFI shall have the right, but
shall not be obligated, to prosecute at its own expense any such
infringements of Patent Rights. If UFRFI prosecutes any such
infringement, LICENSEE agrees that UFRFI may include LICENSEE as a
co-plaintiff in any such suit, without expense to LICENSEE. The total
cost of any such infringement action commenced or defended solely by
UFRFI shall be borne by UFRFI and UFRFI shall keep any recovery or
damages for past infringement derived therefrom.
7.3 If within three (3) months after having been notified of any alleged
infringement or such shorter time proscribed by law, UFRFI shall have
been unsuccessful in persuading the alleged infringer to desist and
shall not have brought and shall not be diligently prosecuting an
infringement action, or if UFRFI shall notify LICENSEE at any time
prior thereto of its intention not to bring suit against any alleged
infringer, then, and in those events only, LICENSEE shall have the
right, but shall not be obligated, to prosecute at its own expense any
infringement of the Patent Rights, and LICENSEE may, for such
purposes, use the name of UFRFI as party plaintiff; provided, however,
that such right to bring an infringement action shall remain in effect
only for so long as the license granted herein remains exclusive. No
settlement, consent judgment or other voluntary final disposition of
the suit may be entered into without the consent of UFRFI, which
consent shall not unreasonably be withheld; provided, however, that
LICENSEE shall indemnify UFRFI against any order for costs that may be
made against UFRFI in such proceedings, in accordance with this
Paragraph.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up
to fifty percent (50%) of the royalties otherwise thereafter due UFRFI
hereunder and apply the same toward reimbursement of its expenses,
including reasonable attorneys' fees, in connection therewith. Said
withholding of royalties shall begin no earlier than
10
<PAGE>
the date LICENSEE first receives a bill for professional services or
expenses associated with the enforcement and/or defense of the Patent
Rights. Any recovery of damages by LICENSEE for any such suit shall be
applied first in satisfaction of any unreimbursed expenses and legal
fees of LICENSEE relating to the suit, and next toward reimbursement
of UFRFI for any royalties past due or withheld with interest and
applied pursuant to this Article VII.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the Patent Rights shall be brought against
LICENSEE, UFRFI, at its option, shall have the right, within thirty
(30) days after commencement of such action, to intervene and take
over the sole defense of the action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the party initiating such suit,
cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
ARTICLE VIII - PRODUCT LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold UFRFI and the University, their
trustees, officers, employees and affiliates, harmless against all
claims and expenses, including legal expenses and reasonable
attorneys' fees whether arising from a third party claim or resulting
from UFRFI's enforcing this indemnification clause against LICENSEE,
or arising out of the death of or injury to any person or persons or
out of any damage to property and against any other claim, proceeding,
demand, expense and liability of any kind whatsoever resulting from
the production, manufacture, sale, use, lease, consumption or
advertisement of the Licensed Product(s) and/or Licensed Process(es)
or arising from any obligation of LICENSEE hereunder. LICENSEE's
indemnification under this Paragraph 8.2 shall not apply to any
liability, damage, loss or expense to the extent that it is
attributable to the intentional wrongdoing or intentional misconduct
of UFRFI and the University, their trustees, officers, employees and
affiliates.
8.2 In the event any such action is commenced or claim made or threatened
against UFRFI or other indemnitees whom LICENSEE is obligated to
indemnify or hold harmless, UFRFI or the other indemnitees shall
promptly notify LICENSEE of such event. LICENSEE shall have the right
to participate in the defense of that part of any such claim or action
commenced or made against UFRFI (or other indemnitees) which relates
to LICENSEE's indemnification, and LICENSEE shall not be liable to
UFRFI or other indemnitees in account of any settlement of any such
claim or litigation affected without LICENSEE's consent, which consent
shall not be unreasonably withheld or delayed.
11
<PAGE>
8.3 LICENSEE shall obtain and carry in full force and effect liability
insurance which shall protect LICENSEE and UFRFI in regard to events
covered by Paragraph 8.1 above.
8.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF
PATENT RIGHTS CLAIMS, ISSUED OR PENDING.
ARTICLE IX - EXPORT CONTROLS
LICENSEE hereby agrees that it shall not sell, transfer, export or reexport
any Licensed Products or Licensed Processes or related information in any form,
or any direct products of such information, except in compliance with all
applicable laws, including the export laws of any U.S. government agency and any
regulations thereunder, and will not sell, transfer, export or reexport any such
Licensed Products or Licensed Processes or information to any persons or any
entities with regard to which there exist grounds to suspect or believe that
they are violating such laws. LICENSEE shall be solely responsible for obtaining
all licenses, permits or authorizations required from the U.S. and any other
government for any such export or reexport. To the extent not inconsistent with
this Agreement, UFRFI agrees to provide LICENSEE with such assistance as it may
reasonably request in obtaining such licenses, permits or authorization.
ARTICLE X - NON-USE OF NAMES
LICENSEE shall not use the names of the University of Florida or University
of Florida Research Foundation, Inc. nor of any of either institution's
employees, nor any q M adaptation thereof, in any advertising, promotional or
sales literature without prior written consent obtained from UFRFI in each case,
except that LICENSEE may state that it is licensed by UFRFI under one or more of
the patents and/or applications comprising the Patent Rights.
ARTICLE XI- ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be void
except in the case of a transfer of substantially all of the assets of one of
the parties hereto. This Agreement shall bind the parties, their successors
resulting from merger, and their permitted assigns.
ARTICLE XII - TERM AND TERMINATION
12.1 Unless earlier terminated as hereinafter provided, this Agreement
shall remain in full force and effect until the last to expire of any
patent claim included in the Licensed Products.
12.2 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by UFRFI.
12
<PAGE>
12.3 Should LICENSEE fail to pay UFRFI royalties due and payable hereunder,
UFRFI shall have the right to terminate this Agreement on thirty (30)
days' notice, unless LICENSEE shall pay UFRFI within the thirty (30)
day period, all such royalties and interest due and payable. Upon the
expiration of the thirty (30) days period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights,
privileges and license granted hereunder shall terminate.
12.4 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 12.2 and 12.3
hereinabove, which shall always take precedence in that order over any
material breach or default referred to in this Paragraph 12.4, UFRFI
shall have the right to terminate this Agreement and the rights,
privileges and license granted hereunder by ninety (90) days' notice
to LICENSEE. Such termination shall become effective unless LICENSEE
shall have cured any such breach or default prior to the expiration of
the ninety (90) day period. If UFRFI terminates this Agreement
pursuant to the terms hereof, the Research Agreement shall
concurrently terminate on the effective date of termination of this
Agreement, and the Research Agreement shall be terminated in
accordance with Paragraph 4.2 and Article X of the Research-Agreement.
12.5 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' written notice to UFRFI, and upon payment of all
amounts due UFRFI through the effective date of the termination.
12.6 UFRFI may terminate this Agreement upon the occurrence of the third
separate default by LICENSEE within any consecutive three (3) year
period for failure to pay royalties when due.
12.7 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. LICENSEE and
any sublicensee thereof may, however, after the effective date of such
termination, sell all Licensed Products, and complete Licensed
Products in the process of manufacture at the time of such termination
and sell the same, provided that LICENSEE shall pay to UFRFI the
royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of
Licensed Products.
12.8 Upon termination of this Agreement for any reason, any sublicensee not
then in default shall have the right to seek a license from UFRFI.
12.9 BANKRUPTCY.
(a) Notice of Assumption of Rejection.
(i) In the event that either party files or has filed against it
a petition under the Federal Bankruptcy Code (11 U.S.C.
Sections 1, et seq.) (the "Bankruptcy Code"), is adjudged
bankrupt, or files or has filed
13
<PAGE>
against it a petition for reorganization or arrangement
under any law relating to bankruptcy or similar laws for the
protection of debtors, whether under the laws of the United
States and its political subdivisions or otherwise, such
party shall (1) notify the other party thereof within ten
(10) days after the filing of such petition or such
adjudication, and (2), within thirty (30) days after the
filing of such petition, shall notify the other party of the
party's assumption or rejection of this Agreement, and shall
file a petition with the appropriate court for approval of
all other action as may be necessary to obtain the approval
of such petition and of such assumption of rejection.
(ii) If such party does not: (1) within thirty (30) days after
the occurrence of any of the foregoing events, notify the
other party of its assumption or rejection of this Agreement
or file the petition, or (2) thereafter diligently take all
other action necessary for the approval of the foregoing
petition or of such assumption or rejection, such party
shall be deemed to have rejected this Agreement. Each party
acknowledges that, for purposes of Section 365 of the
Bankruptcy Code and similar provisions of any other or
future similar laws relating to any party's assumption or
rejection of any executory contract, a period of thirty (30)
days after the date of any filing or adjudication described
above shall constitute a reasonable time in which such party
shall assume or reject this Agreement and a party shall be
deemed to have not diligently taken all action necessary for
the approval of the foregoing petition or of such assumption
or rejection if such petition, assumption or rejection is
not approved by the appropriate court within sixty (60) days
after the filing of the petition for such assumption or
rejection.
(b) Conditions to Assumption.
No election by any party, or any successor-in-interest to such
party, to assume this Agreement as contemplated by paragraph (a)
above shall be effective unless each of the following conditions,
each of which each party acknowledges is commercially reasonable
in the context of a bankruptcy or similar proceeding, has been
satisfied by such party and each of the other parties has
acknowledged such satisfaction in writing:
(1) CURE. Such party has cured, or has provided the other party
adequate assurances that:
(A) Monetary Defaults. Within ten (10) days from the date
of such assumption such party will cure all monetary
defaults under this Agreement; and
14
<PAGE>
(B) Non-Monetary Defaults. Within thirty (30) days from the
date of such assumption such party will cure all
non-monetary defaults under this Agreement.
(2) PECUNIARY LOSS. Such party has compensated or has provided
to the other party adequate assurances that within ten (10)
days from the date of assumption the other party will be
compensated for any pecuniary loss incurred by the party
arising from any default of such party under this Agreement
prior to the assumption.
(3) FUTURE PERFORMANCE. Such party has provided the other party
with adequate assurances of the future performance of such
party's obligations under this Agreement.
(c) Termination.
This Agreement shall terminate upon the rejection of this
Agreement as contemplated by this Paragraph by any party or
successor-in-interest thereto.
(d) No Transfer.
Neither any party's interest in this Agreement nor any portion
thereof shall pass to any trustee, receiver, or assignee for the
benefit of creditors, or any other person or entity or otherwise
by operation of law under the Bankruptcy Code or the insolvency
laws of any state having jurisdiction of the person or property
of such party unless the other party shall consent to such
transfer in writing.
ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of UFRFI:
President
University of Florida Research Foundation, Inc.
223 Grinter Hall
Gainesville, Florida 32611
With copy to:
15
<PAGE>
Director
Office of Patent, Copyright and Technology
Licensing
186 Grinter Hall
Gainesville, Florida 32611
16
<PAGE>
All payments to:
Director
Office of Patent, Copyright and Technology
Licensing
186 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
In the case of LICENSEE:
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, Massachusetts 02142
With copy to:
Bromberg & Sunstein
10 West Street
Boston, Massachusetts 02111
ARTICLE XIV - ARBITRATION
14.1 Any controversy or claim arising out of, or relating to, any
provisions of this Agreement or the breach thereof which cannot
otherwise be resolved by good faith negotiations between the parties
shall be resolved by final and binding arbitration under the rules of
the American Arbitration Association, or the Patent Arbitration Rules
if applicable, then obtaining.
14.2 Notwithstanding the foregoing, nothing in this Article XIV shall be
construed to waive any rights or timely performance of any obligations
existing under this Agreement.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change of
modification except by the execution of a written instrument
subscribed to by the parties hereto.
15.2 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable
17
<PAGE>
under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
15.3 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed
Products shipped to or sold in other countries shall be marked in such
a manner as to conform with the patent laws and practice of the
country of manufacture or sale.
15.4 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.
15.5 The parties adopt and incorporate Article VII, the confidentiality
section of the attached Research Agreement, as though incorporated
herein.
15.6 For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be,
independent contractors and not agents or employees of the other.
Neither party shall have authority to make any statements,
representations or commitments of any kind, or to take any action,
that will be binding on the other party.
15.7 This Agreement may be signed in counterparts which collectively shall
constitute a single agreement.
15.8 Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder,
if that delay or failure is caused by strikes, acts of God or the
public enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for materials, or
any fault beyond its control or without its fault or negligence.
15.9 The parties each, at any time or from time to time, shall execute and
deliver or cause to be delivered such further assurances, instruments
or documents as may be reasonably necessary to fulfill the terms and
conditions of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and
duly executed this Agreement the day and year set forth below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By /s/ Karen A. Holbrook
---------------------------
Name Karen A. Holbrook, Ph.D
-------------------------
Title President
------------------------
Date 9/14/94
------------------------
APOLLO GENETICS, INC.
By /s/ Katherine Gordon
---------------------------
Name Katherine Gordon. PhD
-------------------------
Title President
------------------------
Date 9/8/94
-------------------------
19
<PAGE>
Exhibit A
UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS
[ * ]
* Confidential treatment has been requested for marked portion
20
<PAGE>
Exhibit B
LICENSEE MILESTONES
Year
[ * ]
* Confidential treatment has been requested for marked portion
21
<PAGE>
APOLLO Genetics
John J. Curry
859 Washington Street
Franklin, MA 02038
November 10, 1996
Dear John:
This letter sets forth the terms on which Apollo Genetics, Inc. (The
"Company") is offering to employ you in an executive capacity, as Vice President
of Finance and Administration & Chief Financial Officer, subject to the
supervision of, and to have such authority as is delegated to you by, the Chief
Executive Officer. You shall devote your entire business time, attention and
energies to the business and interests of the Company.
In consideration of the services to be rendered by you hereunder, the
Company shall pay you an annual salary of $80,000, payable in accordance with
the Company's usual payment practices (the "Base Salary"). The first month of
your employment shall be on a half-time basis and employment following that on a
full-time basis. Subject to the approval of the Compensation Committee of the
Board, I am recommending that you also receive incentive stock options (the
"Options") to purchase an aggregate of 50,000 shares of the Common Stock, $.02
par value per share (the "Common Stock"), of the Company at an option price
equal to the fair market value of such Common Stock on the date of grant. As of
November 10, 1996 the fair market value of the Common Stock is $.80 per share.
The Option shall (i) become exercisable with respect to twenty percent (20%) of
such Common Stock on the date of grant and with respect to twenty percent (20%)
of such Common Stock on each of the next four (4) anniversaries of the date of
grant, (ii) be subject to the terms and conditions set forth in the Company's
1993 Incentive and Non-Qualified Stock Option Plan (the "Plan"), and (iii)
contain other terms and conditions as may be imposed by the Compensation
Committee of the Board. The number and price of stock options set forth in this
paragraph represent values prior to the Company's anticipated 1:3.3 reverse
stock split.
Your compensation package shall be reviewed annually and you shall be
eligible for a 15% annual bonus. If your job performance in 1997 upon review is
good or superior you will automatically be awarded an additional 50,000 options
exercisable at the then-current fair market value, with 20% vesting immediately
and 20% per year for four years.
Your employment by the Company hereunder is "at will" and the Company
may terminate such employment at any time, in which case the Company shall pay
you the compensation and benefits otherwise payable to you under the preceding
paragraph through the last day of your actual employment by the Company.
With the exception of the Non-Disclosure Agreement between yourself and
the Company which remains in place, this Agreement supersedes all prior
agreements and constitutes the entire agreement between us with respect to your
employment by the
<PAGE>
Company. This Agreement shall in all events and for all purposes be governed
by the construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to any choice of law principle that would
dictate the application of the laws of another jurisdiction.
Please indicate your acceptance of the terms of this offer by signing
the enclosed copy below and returning it to the Company.
Very truly yours,
/s/ Katherine Gordon
-----------------------
Katherine Gordon, Ph.D.
President and CEO
Agreed to and accepted as of
the date first above written:
/s/ John J. Curry
- -----------------------------
Name:
<PAGE>
APOLLO Genetics
May 15, 1996
Robert J. Leonard
37 Atlantic Avenue
Swampscott, MA 01907
Dear Robert:
This letter sets forth the terms on which Apollo Genetics, Inc. (The
"Company") is offering to employ you, initially in a consulting capacity, as
Vice President of Business Development, subject to the supervision of, and to
have such authority as is delegated to you by, the Chief Executive Officer and
the Board of Directors of the Company. You shall devote your business time,
attention and energies to the business and interests of the Company.
In consideration of the services to be rendered by you hereunder, the
Company shall pay you an annual salary of $100,000, payable in accordance with
the Company's usual payment practices (the "Base Salary"). The first seven
months of your employment shall be on a half-time basis (salary to be adjusted
on a pro-rata basis) and employment following that on a full-time basis. Your
compensation package shall be reviewed annually.
Your employment by the Company hereunder is "at will" and the Company
may terminate such employment at any time, in which case the Company shall pay
you the compensation and benefits otherwise payable to you under the preceding
paragraph through the last day of your actual employment by the Company.
You acknowledge and recognize that the highly competitive nature of the
businesses of the Company and its affiliates and accordingly agree that during
the period commencing on the date hereof and continuing until two years after
you cease to be employed by the Company you will not engage in any activity
which is competitive with any business conducted by the Company ("Business" as
defined below), its subsidiaries or its affiliates, including without limitation
becoming an employee, officer, agent, partner or director of, or other
participant in, any firm which directly competes with the Business. The Business
of the Company is defined as pharmaceuticals for age-related neurological
diseases. It is understood that you are and shall remain until further notice
the acting CEO of Endocon, Inc., a drug delivery company. The current business
activities of Endocon are excluded from this non-compete section.
With the exception of the Non-Disclosure Agreement between yourself
and the Company which remains in place, this Agreement supersedes all prior
agreements and constitutes the entire agreement between us with respect to
your employment by the Company. This Agreement shall in all events and for
all purposes by governed by the construed in accordance with the laws of the
Commonwealth of Massachusetts, without
<PAGE>
regard to any choice of law principle that would dictate the application of
the laws of another jurisdiction.
Please indicate your acceptance of the terms of this offer by signing
the enclosed copy below and returning it to the Company.
Very truly yours,
/s/ Katherine Gordon
---------------------
Katherine Gordon, Ph.D.
President and CEO
Agreed to and accepted as of
the date first above written:
/s/ Robert J. Leonard
- -----------------------------
Name:
<PAGE>
Exhibit 10.15
(Form of Warrant Agreement)
APOLLO BIOPHARMACEUTICS, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
WARRANT AGREEMENT
Dated as of March __, 1997
<PAGE>
WARRANT AGREEMENT, dated the _____ day of March, 1997 (this
"Agreement"), between Apollo BioPharmaceutics, Inc., a Delaware corporation (the
"Company"), and American Stock Transfer and Trust Company, a __________________
corporation, as Warrant Agent (the "Warrant Agent").
W I T N E S E T H:
WHEREAS, in connection with (i) the offering to the public (the
"Public Offering") of up to 1,200,000 shares of the Company's Common Stock
(defined below), $0.02 par value per share, and up to 1,200,000 redeemable
warrants, each such redeemable warrant entitling the registered holder thereof
to purchase one share of Common Stock upon the terms and subject to the
conditions set forth in this Agreement (collectively, the "Redeemable
Warrants"), (ii) the over- allotment option to purchase up to an additional
180,000 shares of Common Stock and up to an additional 180,000 Redeemable
Warrants (the "Over-Allotment Option"), and (iii) the sale to First United
Equities Corporation, its successors and assigns (collectively, the
"Representative") of warrants (the "Representative's Warrants") to purchase up
to 120,000 shares of Common Stock, the Company will issue up to 1,380,000
Redeemable Warrants and up to 120,000 Representative's Warrants (all of such
Redeemable Warrants and Representative's Warrants being hereinafter referred to,
collectively, as the "Warrants" and individually as a "Warrant"); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing the
Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Representative, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings:
(a) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(b) "Business Day" shall mean any day other than a Saturday or
Sunday on which banks in The City of New York are not authorized or required to
close.
(c) "Change of Shares" shall have the meaning ascribed to it in
Section 8(a)(i).
(d) "Commission" shall mean the Securities and Exchange Commission.
1
<PAGE>
(e) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
voting and in the distribution of earnings and assets of the Company without
limit as to amount or percentage.
(f) "Convertible Securities" shall have the meaning ascribed to it
in Section 8(b).
(g) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business in New
York, New York shall be administered, which office is located on the date hereof
at ___________________, New York, New York 100__
(h) "Current Market Price" per share of Common Stock on any date
herein specified shall mean the average of the highest quoted daily closing
prices of the Common Stock for the ten Trading Days preceding such date. The
closing price of the Common Stock on each Trading Day shall be (A) the average
closing bid price for the Common Stock in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System or (B) the closing sale price on the primary exchange on which the Common
Stock is traded, if the Common Stock is traded on a national securities
exchange.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(j) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder thereof or his
attorney duly authorized in writing, and (ii) payment in cash or by certified or
bank check made payable to the Company, of the amount in lawful money of the
United States of America equal to the applicable Exercise Price.
(k) "Exercise Price" shall mean the purchase price per share of
Common Stock that must be paid to the Company as a condition precedent to the
exercise of a Warrant, which amount shall initially be, subject to modification
and adjustment as provided in Section 8 hereof, $___ [130% of the initial public
offering price of the Common Stock] and further subject, in either case, to the
Company's right, in its sole discretion, to decrease the Exercise Price for a
period of not less than 30 days on not less than 30 days' prior written notice
to the Registered Holders and the Representative.
(l) "Initial Warrant Exercise Date" shall mean March __, 1997 [the
date of the Prospectus].
(m) "Initial Warrant Redemption Date" shall mean March __, 1998 [12
months from the date of the Prospectus].
(n) "Redemption Date" shall mean with respect to any Redeemable
Warrant, the date on which such Redeemable Warrant will be redeemed, as set
forth in a notice given with respect to such Redeemable Warrants pursuant to
Section 9.
2
<PAGE>
(o) "Redemption Price" shall mean $0.25 per Warrant.
(p) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6 hereof.
(q) "Representative's Warrant Agreement" shall mean the agreement
dated as of March __, 1997 [the settlement date] between the Company and the
Representative relating to and governing the terms and provisions of the
Representative's Warrants.
(r) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
(s) "Trading Day" shall mean any day other than a Saturday or Sunday
on which the principal market on which Common Stock is traded is open for
trading.
(t) "Transfer Agent" shall mean American Stock Transfer and Trust
Company, New York, New York, or its authorized successor.
(u) "Underwriting Agreement" shall mean the underwriting agreement
dated March __, 1997 [the date of the Prospectus] between the Company and the
Representative, as representative of the several underwriters, relating to the
purchase for resale to the public of shares of Common Stock and Redeemable
Warrants.
(v) "Warrant Agent" shall have the meaning specified in the
introduction.
(w) "Warrant Certificates" shall mean (i) in the case of Redeemable
Warrants, certificates representing each of the Redeemable Warrants
substantially in the form annexed hereto as Exhibit A and (ii) in the case of
Representative's Warrants, certificates representing each of the
Representative's Warrants substantially in form annexed hereto as Exhibit B and
"Warrant Certificate" shall mean any one of them.
(x) "Warrant Expiration Date" shall mean, with respect to the
Redeemable Warrants and the Representative's Warrants, 5:00 p.m. (New York time)
on March __, 2002 [the date which is the fifth anniversary of the Initial
Warrant Exercise Date], or, if such date shall not be a Business Day, then 5:00
p.m. (New York time) on the next following Business Day, subject to the
Company's right, prior to the Warrant Expiration Date, in its sole discretion,
to extend such Warrant Expiration Date on five Business Days' prior written
notice to the Registered Holders.
3
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates. (a) One
Warrant shall initially entitle the Registered Holder of the Warrant Certificate
representing such Warrant to purchase at the Exercise Price therefor from the
Initial Warrant Exercise Date until the Warrant Expiration Date, one share of
Common Stock upon the exercise thereof, subject to modification and adjustment
as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 1,200,000 Redeemable Warrants to purchase up to an aggregate of
1,200,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in part,
Warrant Certificates representing up to 180,000 Redeemable Warrants to purchase
up to an aggregate of 180,000 shares of Common Stock (subject to modification
and adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(d) On the Initial Warrant Exercise Date, Warrant Certificates
representing 120,000 Representative's Warrants to purchase up to an aggregate of
120,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8 hereof), shall be countersigned, issued and delivered by
the Warrant Agent upon written order of the Company signed by its Chairman of
the Board, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, as the
case may be, the Warrant Agent shall countersign and deliver Warrant
Certificates in required denominations of one or whole number multiples thereof
to the person entitled thereto in connection with any transfer or exchange
permitted under this Agreement. No Warrant Certificates shall be issued except
(i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7 hereof, (iv) Warrant Certificates issued
pursuant to the Representative's Warrant Agreement, and (v) at the option of the
Company, Warrant Certificates in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Exercise Price, the number
of shares of Common Stock purchasable upon exercise of the Warrants or the
Redemption Price therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates. (a) The
Warrant Certificates representing Redeemable Warrants shall be substantially in
the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and the Warrant Certificates representing the
Representative's Warrants shall be substantially in the form annexed hereto as
Exhibit B (the provisions of which are hereby incorporated herein). All of such
Warrant Certificates may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date
4
<PAGE>
of issuance thereof (whether upon initial issuance, transfer, exchange or in
lieu of mutilated, lost, stolen or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
SECTION 4. Exercise. (a) Warrants in denominations of one or whole
number multiples thereof may be exercised commencing at any time on or after the
Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon
the terms and subject to the conditions set forth herein (including the
provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, together with payment in cash or by certified or bank check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Exercise Price has been received in good funds
by the Warrant Agent. The person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of such
securities as of the close of business on the Exercise Date. If Warrants in
denominations other than one or whole number multiples thereof shall be
exercised at one time by the same Registered Holder, the number of full shares
of Common Stock which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of full shares of Common Stock issuable
upon such exercise. As soon as practicable on or after the Exercise Date and in
any event within five Business Days after such date, if one or more Warrants
have been exercised, the Warrant Agent on behalf of the Company shall cause to
be issued to the person or persons entitled to receive the same a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon such
exercise, and the Warrant Agent shall deliver the same to the person or persons
entitled thereto. Upon the exercise of any one or more Warrants, the Warrant
Agent shall promptly notify the Company in writing of such fact and of the
number of securities delivered upon such exercise and, subject to subsection (b)
below, shall cause all payments of an amount, in cash or by check made payable
to the order of the Company, equal to the Exercise Price for such Warrants less
any amount payable to the Representative under Section 4(b) below, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any one or more Redeemable
Warrants, the Warrant Agent shall, on a daily basis, within five Business Days
after such exercise, notify the Representative, its successors or assigns of the
exercise of any such Redeemable Warrants and shall, on a weekly basis (subject
to collection of funds constituting the tendered Exercise Price,
5
<PAGE>
but in no event later than five Business Days after the last day of the calendar
week in which such funds were tendered), remit to the Representative an amount
equal to five percent of the Exercise Price of such Redeemable Warrants being
then exercised; provided, however, that the Warrant Agent shall not be obligated
to pay any amounts pursuant to this Section 4(b) during any week that such
amounts payable are less than $1,000 and the Warrant Agent's obligation to make
such payments to the Representative shall be suspended until the amount payable
aggregates $1,000; and provided, further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly; and
provided, further, that such remittance to the Representative shall not be made
with respect to any exercise of any Redeemable Warrant (i) that has an Exercise
Price greater than the Current Market Price on the date of exercise, (ii) if
such Redeemable Warrant is held in a discretionary account at the time of
exercise and prior specific approval for exercise is not received from the
Registered Holder thereof, or (iii) if the exercise of such Redeemable Warrant
was not solicited by the Representative.
(c) The Company shall not be obligated to issue any fractional share
interests or fractional warrant interests upon the exercise of any Warrant or
Warrants, but instead shall pay cash in lieu of fractional interests based upon
the current market value of any fractional shares.
(d) The Warrant Agent shall retain for a period of two years from
the date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue upon
exercise of Warrants, such number of shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery thereof against payment of the Exercise
Price therefor, be duly and validly issued and fully paid and nonassessable and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be listed
on each securities exchange or approved for quotation on any automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or quoted.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company shall file a registration statement under the federal securities laws or
a post-effective amendment, use its reasonable efforts to cause the same to
become or remain effective and to keep such registration statement current while
any of the Warrants are outstanding, and deliver a prospectus which complies
with Section 10(a)(3) of the Securities Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws for the purpose of enabling the exercise
of the Warrants, provided, that the Company shall not be required to qualify as
a foreign corporation or file a general or limited consent to service of
6
<PAGE>
process in any such jurisdiction, or to make any changes in its capital
structure or in any other material aspect of its business or to enter into any
material agreement with any state securities authority, including any agreements
to escrow any shares of its capital stock. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
(e) Prior to the exercise of any Warrant, the Registered Holder
thereof, as such, shall not be entitled to any rights of a stockholder of the
Company, including without limitation the right to vote or to receive dividends
or other distributions, and shall not be entitled to receive any notice of
proceedings of the Company except as required by applicable law or provided
herein, in the Representative's Warrant Agreement, and the Underwriting
Agreement.
SECTION 6. Exchange and Registration of Transfer. (a) Warrant
Certificates may be exchanged for other Warrant Certificates representing an
equal aggregate number of Warrants or may be transferred in whole or in part.
Warrant Certificates to be so exchanged shall be surrendered to the Warrant
Agent at its Corporate Office, and the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the assignment or
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or the Registered Holder's agent duly
authorized in writing.
7
<PAGE>
(d) No service charge shall be made for any exchange or registration
of transfer of Warrant Certificates. However, the Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of
Common Stock. (a) In case the Company shall at any time subdivide or combine the
outstanding shares of Common Stock, the Exercise price shall forthwith be
proportionately decreased in the case of a subdivision or increased in the case
of a combination.
(b) In case the Company shall pay a dividend in, or make a
distribution of, shares of Common Stock or of the Company's capital stock
convertible into shares of Common Stock, the Exercise price shall forthwith be
proportionately decreased. An adjustment made purusant to this Section 8(b)
shall be made as of the record date for the subject stock dividend or
distribution.
(c) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par value
or as a result of a subdivision or combination), or in case of any consolidation
or merger of the Company with or into another corporation (other than a merger
in which the Company is the continuing corporation and which does not result in
any reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination)) or in case of any sale or
conveyance to another corporation of all or substantially all of the assets or
property of the Company that is effected in such a way that holders of the
securities issuable upon exercise of the Warrants shall be entitled to receive
securities or other property with respect to or in exchange for the securities
issuable upon exercise of the Warrants, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate
8
<PAGE>
provision whereby the Registered Holder of each Warrant then outstanding shall
have the right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance, by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
The above provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Exercise Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Exercise Price per
share and the number of shares purchasable thereunder as the Exercise Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Exercise Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Registered Holder at his
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(f) Warrantholders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company
may, on not less than 30 days' prior written notice (which may be given before
the Initial Warrant Redemption Date) redeem all or a portion (pro rata among all
Registered Holders) of the Warrants at the Redemption Price, provided, however,
that before any such call for redemption of Warrants can take place, (A) the
average closing bid price for the Common Stock in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System or (B) the closing sale price on the primary exchange on which the Common
Stock is traded, if the Common Stock is traded on a national securities
exchange, shall have for 20 consecutive Trading Days ending within ten days
prior to the date on which the notice
9
<PAGE>
contemplated by (b) and (c) below is given, equaled or exceeded $_____ [200% of
the initial public offering price of the Common Stock] per share (subject to
adjustment in the event of any stock splits or other similar events as provide
in Section 8 hereof); provided, further that so long as any Representative's
Warrants shall be held by the Representative or an affiliate of the
Representative, the Company may not redeem such Representative's Warrants.
(b) If the Company shall exercise its right to redeem any or all of
the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given in accordance with
Section 12 whether or not the Registered Holder receives such notice. Not less
than five Business Days prior to the mailing to the Registered Holders of the
Warrants of the notice of redemption, the Company shall deliver or cause to be
delivered to the Representative a similar notice telephonically and confirmed in
writing together with a list of the Registered Holders (including their
respective addresses and number of Warrants beneficially owned) to whom such
notice of redemption has been or will be given and the number of Warrants to be
redeemed from each such Registered Holder.
(c) The notice of redemption shall specify (i) the Redemption Price,
(ii) the date fixed for redemption, which shall in no event be less then thirty
(30) days after the date of mailing of such notice, (iii) the number of Warrants
to be redeemed from the recipient Registered Holder, (iv) the place where the
Warrant Certificate shall be delivered and the Redemption Price shall be paid,
and (v) that the right to exercise the Warrants to which the notice of
redemption applies shall terminate at 5:00 p.m. (New York time) on the Business
Day immediately preceding the date fixed for redemption. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a Registered Holder
(a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(New York time) on the Business Day immediately preceding the Redemption Date
fixed for such Warrant. The Redemption Price payable to the Registered Holders
shall be mailed to such persons at their addresses of record.
(e) The Company shall indemnify the Representative and each person,
if any, who controls the Representative within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from the registration statement or prospectus referred to in
Section 5(b) hereof to the same extent and with the same effect (including the
provisions regarding contribution) as the provisions pursuant to which the
Company has agreed to indemnify the Representative contained in Section 7 of the
Underwriting Agreement.
10
<PAGE>
(f) If and to the extent reasonably requested by the Representative,
five Business Days prior to the Redemption Date, the Company shall furnish to
the Representative (i) an opinion of counsel to the Company, dated such date and
addressed to the Representative, and (ii) a "cold comfort" letter dated such
date addressed to the Representative, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in the registration statement, if any, of the Company in connection
with such redemption, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities, including, without limitation,
those matters covered in Sections 6(k) and (l) of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the Redemption
Date, and in any event within 15 months thereafter, make "generally available to
its security holders" (within the meaning of Rule 158 under the Securities Act)
an earnings statement (which need not be audited) complying with Section 11(a)
of the Securities Act and covering a period of at least 12 consecutive months
beginning after the Redemption Date.
SECTION 10. Concerning the Warrant Agent. (a) The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Exercise Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence, bad faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
11
<PAGE>
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, President, any Vice President, or the
Treasurer (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company has agreed in a separate agreement to pay the
Warrant Agent reasonable compensation or its services hereunder and to reimburse
it for its reasonable expenses hereunder. The Company further agrees to
indemnify the Warrant Agent and save it harmless against any and all losses,
expenses and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties and
powers hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's gross negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own gross negligence, bad faith or willful
misconduct), after giving 30 days' prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a successor Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a successor
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a bond or trust company having a capital and surplus,
as shown by its last published report to its stockholders, of not less than
$10,000,000 or a stock transfer company doing business in New York, New York.
After acceptance in writing of such appointment by the successor Warrant Agent
is received by the Company, such successor Warrant Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent may be converted or
merged, any corporation resulting from any consolidation to which the Warrant
Agent shall be a party, or any corporation succeeding to the corporate trust
business of the Warrant Agent shall be the Warrant Agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor Warrant Agent shall promptly cause
notice of its succession, and a written consent agreeing to act hereunder, as
Warrant Agent to be mailed to the Company and to the Registered Holders of each
Warrant Certificate.
12
<PAGE>
(h) The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or any other legal entity.
SECTION 11. Modification of Agreement. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interest of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders representing not less than two- thirds of the Warrants then
outstanding; provided, further, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, or to increase the
Exercise Price therefor, shall be made without the consent in writing of the
Registered Holders representing not less than two-thirds of the Warrants then
outstanding, other than such changes as are presently specifically prescribed by
this Agreement as originally executed.
SECTION 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first- class postage prepaid, or delivered to a
telegraph office for transmission, if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at One Kendall Square,
Building 200, Suite 2200, Cambridge, Massachusetts 02139, Attention: Vice
President of Finance, Chief Financial Officer and Treasurer, or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate Office. Copies of an
notice delivered to the Representative pursuant to this Agreement shall be
delivered to First United Equities Corporation 200 Garden City Plaza, Suite 518,
Garden City, New York, 11530, Attention _________, or at such other address as
may have been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 14. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns and the Registered Holders from time to time of Warrant
Certificates or any of them. Except as hereinafter stated, nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation. The Representative is, and shall at all times irrevocably be deemed
to be, a third-party beneficiary of this Agreement, with full power, authority
and standing to enforce the rights granted to it hereunder.
SECTION 15. Counterparts. This Agreement may be executed in several
counterparts each with the same effect. Any single counterpart or set of
counterparts signed, in either case, by all the parties shall constitute a full
and original document for all purposes.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
[SEAL]
APOLLO BIOPHARMACEUTICS, INC. AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By:________________________________ By:___________________________________
Name: Name:
Title: Title:
14
<PAGE>
EXHIBIT A
No. W_____ VOID AFTER MARCH__, 2002
______________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE COMMON STOCK
_____________________________
CUSIP___
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $0.02 par
value, of Apollo BioPharmaceutics, Inc., a Delaware corporation (the "Company"),
at any time from March __, 1997 [the date of the Prospectus] (the "Initial
Warrant Exercise Date"), and prior to the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Exercise Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer and Trust Company, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $_____, [130% of the initial
public offering price of the Common Stock] subject to adjustment (the "Exercise
Price"), in lawful money of the United States of America in cash or by certified
or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated March __,
1997 [date of the Prospectus], by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the
1
<PAGE>
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
March __, 2002 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]. If such date shall in The City of New York be a Saturday or
Sunday or a day on which banks are authorized or required to close (a "Business
Day"), then the Expiration Date shall mean 5:00 p.m. (New York time) the next
following Business Day.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
such securities is effective or unless, in the opinion of counsel to the
Company, an exemption thereunder is available. The Company has covenanted and
agreed that if any securities to be reserved for the purpose of exercise of the
Warrants represented hereby require registration with, or approval of, any
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will
file a registration statement under the federal securities laws or a
post-effective amendment, use its reasonable efforts to cause the same to become
or remain effective and to keep such registration statement current while any of
the Warrants are outstanding, and deliver a prospectus that complies with
Section 10(a)(3) of the Securities Act to the Registered Holder exercising this
Warrant. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder, as such, shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at a redemption price of $0.25 per
Warrant, at any time commencing after the Initial Warrant Exercise Date,
provided that (i) the average closing bid price for the Company's Common Stock
in the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System, or (ii) the closing sale price on
the primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have for 20 consecutive days on
which such market is open for trading ending within ten days prior to the Notice
of Redemption, as defined below,
2
<PAGE>
equaled or exceeded $_____ [200% of the initial public offering price of Common
Stock] per share (subject to adjustment in the event of any stock splits or
other similar events). Notice of redemption (the "Notice of Redemption") shall
be given by the Company not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no right with respect to
this Warrant except to receive the $0.25 per Warrant upon surrender of this
Certificate.
Under certain circumstances described in the Warrant Agreement,
First United Equities Corporation shall be entitled to receive as a solicitation
fee an aggregate of five percent (5%) of the Exercise Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated March __, 1997
SEAL APOLLO BIOPHARMACEUTICS, INC.
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
3
<PAGE>
COUNTERSIGNED:
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By: ___________________________
Authorized Officer
4
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise __________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
(please print or type name and address)
and be delivered to
______________________
______________________
______________________
______________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
5
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by First
United Equities Corporation unless the following box is
checked.
2. The exercise of this Warrant was solicited by
3. If the exercise of this Warrant was not solicited,
please check the following box.
Dated:________________________ X_____________________________
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ________________, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
(please print or type name and address)
____________ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _____________________________ as
its/his/her attorney-in-fact to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated:________________________ X_____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION ON OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
7
<PAGE>
EXHIBIT B
No. W_____ VOID AFTER MARCH __, 2002
______________ WARRANTS
WARRANT CERTIFICATE TO
PURCHASE COMMON STOCK
_________________________
CUSIP____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants (the "Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $0.02 par value, of Apollo
BioPharmaceutics, Inc., a Delaware corporation (the "Company"), at any time from
March __, 1997 [the date of the Prospectus] (the "Initial Warrant Exercise
Date"), and prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Exercise Form on
the reverse hereof duly executed, at the corporate office of American Stock
Transfer and Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $_____, [130% of the initial public offering
price of the Common Stock] subject to adjustment (the "Exercise Price"), in
lawful money of the United States of America in cash or by certified or bank
check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated March __,
1997 [date of the Prospectus], by and between the Company and the Warrant Agent.
This Warrant Certificate is being issued upon exercise of certain
Representative's Warrants issued by the Company and dated as of March __, 1997.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the
1
<PAGE>
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
March ___, 2002 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]. If such date shall in the City of New York be a Saturday or
Sunday or a day on which banks are authorized or required to close (a "Business
Day"), then the Expiration Date shall mean 5:00 p.m. (New York time) the next
following Business Day.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
such securities is effective or unless, in the opinion of counsel to the
Company, an exemption thereunder is available. The Company has covenanted and
agreed that if any securities to be reserved for the purpose of exercise of the
Warrants represented hereby require registration with, or approval of, any
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will
file a registration statement under the federal securities laws or a
post-effective amendment, use its best efforts to cause the same to become or
remain effective and to keep such registration statement current while any of
the Warrants are outstanding and deliver a prospectus that complies with Section
10(a)(3) of the Securities Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder, as such, shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at a redemption price of $0.25 per
Warrant, at any time commencing after the Initial Warrant Exercise Date,
provided that (i) the average closing bid price for the Company's Common Stock
in the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System, or (ii) the closing sale price on
the primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have for 20 consecutive days on
which such market is open for trading ending within ten days prior to the Notice
of Redemption, as defined below,
2
<PAGE>
equaled or exceeded $_______ [200% of the initial public offering price of
Common Stock] per share (subject to adjustment in the event of any stock splits
or other similar events); provided, further that so long as this Warrant is held
by the Representative or an affiliate of the Representative, the Company may not
redeem this Warrant. Notice of redemption (the "Notice of Redemption") shall be
given by the Company not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no right with respect to
this Warrant except to receive the $0.25 per Warrant upon surrender on this
Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate may not be transferred for a period of one
year from the Initial Warrant Exercise Date, except to officers of the
Representative or to members of the Representative's selling group in the Public
Offering.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated __________, 19__.
SEAL APOLLO BIOPHARMACEUTICS, INC.
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
3
<PAGE>
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:_____________________________
Authorized Officer
4
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise __________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
(please print or type name and address)
and be delivered to
______________________
______________________
______________________
______________________
(please print or type name and address)
5
<PAGE>
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:________________________ X_____________________________
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
(please print or type name and address)
____________ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints ______________________ as its/his/her
attorney-in-fact to transfer this Warrant Certificate on the books of the
Company, with full power of substitution in the premises.
Dated:________________________ X_____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION ON OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
7
<PAGE>
Exhibit 10.16
APOLLO BIOPHARMACEUTICS, INC.
AND
FIRST UNITED EQUITIES CORPORATION
-----------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of March __, 1997
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT, dated as of March __, 1997 (this
"Agreement"), between APOLLO BIOPHARMACEUTICS, INC., a Delaware corporation (the
"Company"), and FIRST UNITED EQUITIES CORPORATION (the "Representative").
W I T N E S E T H:
WHEREAS, the Company proposes to issue to the Representative 120,000
warrants ("Representative's Warrants"), each Representative's Warrant entitling
the registered holder thereof to purchase one share of common stock, $0.02 par
value, of the Company ("Common Stock");
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement"), dated March __, 1997, between the
Representative and the Company to act as the representative of the Underwriters
listed in the Underwriting Agreement (the "Underwriters") in connection with the
Company's proposed public offering of 1,200,000 shares of Common Stock and
1,200,000 redeemable warrants ("Redeemable Warrants"), each to purchase one
share of Common Stock;
WHEREAS, the Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-18769) (the "Registration
Statement"), for the registration of the Common Stock and Redeemable Warrants to
be sold as part of the Public Offering, the Common Stock issuable upon exercise
of the Redeemable Warrants, the Representative's Warrants and the Common Stock
issuable upon exercise of the Representative's Warrants under the Securities Act
of 1933, as amended (the "Securities Act"). Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time such registration statement becomes effective (including the
prospectus, financial statements, schedules, exhibits and all other documents
filed as a part thereof or incorporated therein (including without limitation
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) under the Securities Act), is hereinafter called the
"Registration Statement"; and
WHEREAS, the Representative's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of the Representative's compensation in connection with the
Representative acting as the Representative pursuant to the Underwriting
Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of Ten Dollars ($10), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Grant. The Holder (as defined in Section 3.1 below) is hereby granted
120,000 Representative's Warrants, each Representative's Warrant entitling the
Holder the right to purchase, at any time from March __, 1997 until 5:00 P.M.,
New York time, on March __, 2002
1
<PAGE>
(the "Exercise Period"), one share of Common Stock at an initial exercise price
of $____ per share of Common Stock (subject to adjustment as provided in Section
8 hereof), subject to the terms and conditions of this Agreement. Except as
expressly set forth herein, the shares of Common Stock issuable upon exercise of
the Representative's Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates evidencing the
Representative's Warrants (the "Warrant Certificates") delivered pursuant to
this Agreement shall be in the form set forth in Exhibit A attached hereto and
made a part hereof, with such appropriate insertions, omissions, substitutions
and other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Representative's Warrants initially are
exercisable during the Exercise Period at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Common Stock set forth
in Section 6 hereof, payable to the Company by certified or official bank check
in New York Clearing House funds. Upon surrender during the Exercise Period of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased, at the Company's principal offices in the
United States (presently located at One Kendall Square, Building 200, Suite
2200, Cambridge, Massachusetts 02139) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable, at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of less than all the shares of Common
Stock under any Warrant Certificate (whether pursuant to this Section 3.1 or
Section 3.2 hereof), the Company shall cancel such Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
3.2 Exercise by Surrender of Representative's Warrant. In addition to the
method of payment set forth in Section 3.1 hereof and in lieu of any cash
payment required thereunder, the Holder(s) of the Representative's Warrants
shall have the right at any time and from time to time to exercise the
Representative's Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof in exchange for the
number of shares of Common Stock equal to the product of (x) the number of
shares of Common Stock as to which the Representative's Warrants are being
exercised, multiplied by (y) a fraction, the numerator of which is the Market
Price (as defined below) of the Common Stock less the Exercise Price therefor,
and the denominator of which is such Market Price. Solely for the purposes of
this paragraph, Market Price of each security shall be calculated either (i) on
the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 13 hereof (the "Notice Date") or (ii) as
the average of the Market Prices for such security for each of the five trading
days immediately preceding the Notice Date, whichever of (i) or (ii) is greater.
2
<PAGE>
3.3 Definition of Market Price. As used herein with respect to the Common
Stock, the phrase "Market Price" at any date shall be deemed to be the last
reported sale price of the Common Stock, or if no such reported sale takes place
on such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or by
NASDAQ, or if such security is not listed or admitted to trading on any such
securities exchange or quoted by NASDAQ, the average closing bid price as
furnished by the National Quotation Bureau or a similar organization if NASDAQ
is no longer reporting such information, or if such information is no longer
being provided with respect to the Common Stock, then as determined in good
faith by written resolution of the Board of Directors of the Company, based on
the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Representative's
Warrants, the issuance of certificates for shares of Common Stock or other
securities, property or rights underlying such Representative's Warrants, shall
be made forthwith (and in any event within three (3) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax that
may be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock (and other securities, property or rights issuable upon the
exercise of the Representative's Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates and certificates representing the shares of
Common Stock shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Representative's Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Representative's Warrants are being acquired as an investment and not with a
view to the distribution thereof; that the Representative's Warrants may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for a period of one (1) year after the date hereof, except to (i)
officers (who are also stockholders or employees) of the Representative; (ii)
any successor firm or corporation of the Representative; or (iii) in the case of
an individual, pursuant to such individual's last will and testament or the laws
of descent and distribution.
3
<PAGE>
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Representative's Warrant
shall be $_____ per share of Common Stock purchased thereunder. The adjusted
exercise price of the Common Stock shall be the price that results from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
(a) The Representative's Warrants have been registered under the Securities
Act. If the registration statement under which the shares of Common Stock
underlying the Representative's Warrants and any of the other securities issued
or issuable upon exercise of the Representative's Warrants (collectively, the
"Warrant Securities") are registered ceases to be effective or the prospectus
contained in such registration statement ceases to be current, then upon
exercise, in part or in whole, the Warrant Securities shall bear the following
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and may
not be offered or sold except pursuant to (i) an effective registration
statement under the Securities Act, (ii) to the extent applicable, Rule 144
under the Securities Act (or any similar rule under such Securities Act
relating to the disposition of securities), or (iii) an opinion of counsel,
if such opinion shall be reasonably satisfactory to counsel to the issuer,
that an exemption from registration under such Securities Act is available.
(b) The Company shall use its best efforts to keep current the Registration
Statement (or other appropriate form, including Form S-3) covering the Warrant
Securities for so long as any Representative's Warrants shall remain
outstanding. In furtherance of and without limiting the foregoing, the Company
shall prepare and file with the Commission such post-effective amendment or
amendments to the Registration Statement as may be necessary, in the opinion of
counsel to the Representative or the Holders, so as to permit a public offering
and sale of the Warrant Securities by the Representative and any other Holders
of such securities and use its best efforts to cause such post-effective
amendment or amendments to become effective on or prior to the time that the
Representative's Warrants first become exercisable and shall prepare and file
with the Commission such amendments and supplements to the Registration
Statement, as so amended, and the prospectus used in connection therewith, as
may be necessary to keep the Registration Statement, as so amended, effective
and the prospectus contained therein current, and to comply with the provisions
of the Securities Act with respect to the disposition of all Warrant Securities
covered by such registration statement, for the period referred to in the
immediately preceding sentence.
4
<PAGE>
7.2 Piggyback Registration. Without limitation to Section 7.1(b) above, if
at any time during the seven (7) year period following the date hereof the
Company proposes to register any of its securities under the Securities Act
(other than on Form S-4 or in connection with an employee benefit plan or
similar plan registered on Form S-8 (or a similar special purpose form) or any
dividend reinvestment plan), it will give written notice by registered mail, at
least 30 days prior to the filing of each such registration statement, to the
Representative and to all other Holders of Representative's Warrants and/or
other Warrant Securities of its intention to do so. If the Representative or
other Holders of Representative's Warrants and/or other Warrant Securities
notify the Company within 15 days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Representative and such Holders
of the Representative's Warrants and/or other Warrant Securities the opportunity
to have any such Warrant Securities registered under such registration
statement, subject to Section 7.2 of this Agreement.
7.3 Demand Registration. Without limitation to Section 7.1(b) above:
(a) At any time, the Holders of the Representative's Warrants and/or other
Warrant Securities representing a "Majority" (as hereinafter defined) of such
securities shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Commission, on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the
Securities Act, so as to permit a public offering and sale of their respective
Warrant Securities for nine (9) consecutive months (or such shorter period which
shall terminate when all of the Warrant Securities covered by such registration
statement have been sold pursuant thereto) by such Holders and any other Holders
of the Representative's Warrants and/or other Warrant Securities who notify the
Company within 10 days after receiving notice from the Company of such request;
provided, however, that, the Company shall not be obligated to file any such
registration statement pursuant to this Section 7.3(a) so long as the
Registration Statement (as it may hereafter be amended) remains effective and
the prospectus contained therein remains current, provided such Registration
Statement (as it may hereafter be amended) covers the public offering and sale
of all of the Warrant Securities by the Representative and the other Holders, if
any, of the Representative's Warrants and/or other Warrant Securities.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of Representative's Warrants and/or other Warrant
Securities within 10 days from the date of the receipt of any such registration
request.
(c) In addition to the registration rights under Section 7.2 hereof and
subsection (a) of this Section 7.3, at any time, any Holders of Representative's
Warrants and/or other Warrant Securities representing a Majority of such
securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months (or such shorter period which shall terminate when all of the
Warrant Securities covered by such registration statement have been sold
pursuant thereto) by any such
5
<PAGE>
Holder of its Warrant Securities; provided, however, that the provisions of
Section 7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In connection
with any registration under Section 7.2 or 7.3 hereof, the Company covenants and
agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within 45 days of receipt of any demand therefor in connection with any
registration under Section 7.3, shall use its best efforts to have any
registration statements declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses and blue sky fees and expenses. The
Holder(s) shall pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c) hereof. If the Company
shall fail to comply with its obligations under Section 7.4(a), the Holder(s)
shall be entitled to seek equitable or other relief available to the Holder(s).
(c) The Company shall take all necessary action that may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify and hold harmless the Holder(s) of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holder(s) within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever including,
without limitation, the fees and expenses of legal counsel) to which any of them
may become subject under the Securities Act, the Exchange Act or otherwise,
arising from such registration statement, but only to the same extent and with
the same effect as the provisions contained in Section 7(a) of the Underwriting
Agreement pursuant to which the Company has agreed to indemnify each of the
Underwriters.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company and its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, from and against any and
all loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever
including, without
6
<PAGE>
limitation, the fees and expenses of legal counsel) to which they may become
subject under the Securities Act, the Exchange Act or otherwise, arising from
information furnished in writing by or on behalf of such Holders or their
successors or assigns, specifically for inclusion in such registration
statement, but only to the same extent and with the same effect as the provision
pursuant to which the Underwriters have agreed to indemnify the Company
contained in Section 7(b) of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Representative's Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof or permit any other registration statement to be
or remain effective during the effectiveness of the registration statement filed
pursuant to Section 7.3 hereof without the prior written consent of the Holders
of the Representative's Warrants and the other Warrant Securities representing a
Majority of such securities.
(h) The Company shall cause to be furnished to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Securities Act) an earnings statement (which need not be audited)
complying with Section 11(a) of the Securities Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to
7
<PAGE>
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such Holder or underwriter shall reasonably request.
(k) With respect to a registration under Section 7.3 hereof, the Company
shall enter into an underwriting agreement with the underwriters selected for
such underwriting by the Holders of a Majority of the Warrant Securities
requesting such registration, which may be the Representative. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms and conditions as
are customarily contained in agreements of the type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) or issuable
upon conversion or exercise or in exchange for securities held by such Holder(s)
as of the date of filing of such registration statement.
(m) For purposes of this Agreement, the term "Majority" or "66-2/3%" in
reference to the Holders of Representative's Warrants and/or other Warrant
Securities, shall mean in excess of 50%, in the former case, and 66-2/3%, in the
latter case, of the shares of Common Stock issued or issuable upon exercise of
all then outstanding Representative's Warrants and/or Warrant Securities
(assuming the exercise of all of the Representative's Warrants) that (i) are not
held by the Company, an affiliate, officer, creditor, employee, or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith, and (ii) have not been resold to the
public.
7.5 Underwriters. In connection with an underwritten offering pursuant to
Section 7.2, the Company shall (together with all Holders, directors, officers
and other stockholders proposing to distribute their securities (the "Other
Stockholders")) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Holders and reasonably acceptable to the
Company. If the managing underwriter of such underwritten offering advises the
Company, the Holders and the Other Stockholders in writing that the inclusion of
the Warrant Securities would materially adversely effect the proposed offering,
the number of securities that may be included in such a registration shall be
allocated among all security holders who wish to include their securities in
such registration in proportion, as nearly as practicable, to the respective
amounts of securities which would otherwise be included in such registration
held by such security holders at the time of the filing of the related
registration statement.
8. Adjustments to Exercise Price and Number of Securities.
8
<PAGE>
8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased. An adjustment made pursuant
to this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price per shares of Common Stock purchasable hereunder pursuant to the
provisions of this Section 8, the respective numbers of shares of Common Stock
issuable upon the exercise of each Representative's Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price per
share of Common Stock purchasable hereunder in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Representative's Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price per share of Common Stock
purchasable hereunder.
8.4 Definition of Common Stock. For the purpose of this Agreement, the term
"Common Stock" shall mean (i) the class of stock designated as Common Stock in
the Certificate of Incorporation of the Company as may be amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such shares of Common Stock consisting solely of changes in
par value, or from par value to no par value, or from no par value to par value.
8.5 Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger that does not result in any
reclassification or change of the outstanding share of Common Stock), the
corporation formed by such consolidation or surviving such merger shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder of each Representative's Warrant outstanding immediately prior to the
effective time of such consolidation or merger shall have the right thereafter
(until the expiration of such Representative's Warrant) to receive, upon
exercise of such Representative's Warrant, the kind and amount of shares of
stock and other securities and property receivable upon such consolidation or
merger, by a Holder of the number of shares of Common Stock of the Company for
which such Representative's Warrant might have been exercised immediately prior
to such consolidation or merger. Such supplemental warrant agreement shall
provide for adjustments that shall be identical to the adjustments provided in
Section 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate or Warrant Certificates of like tenor and date representing
in the aggregate the right to purchase the same number of
9
<PAGE>
shares of Common Stock in such denominations as shall be designated by the
Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Representative's
Warrants, if mutilated, the Company shall execute and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Representative's Warrants, but instead shall pay cash in lieu of
fractional interests, based on the market value of a share of Common Stock.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Representative's Warrants,
such number of shares of Common Stock or other securities, property or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Representative's Warrants in the manner provided
herein and therein and payment of the Exercise Price herein and/or the exercise
price therein, as the case may be, all shares of Common Stock and other
securities issuable upon the exercise of the Representative's Warrants shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder or other person or entity. As long as the
Representative's Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Representative's Warrants to be listed (subject to official notice of issuance)
on all securities exchanges and/or quoted in such inter-dealer quotation systems
on which the Common Stock issued to the public in connection with the Public
Offering may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Representative's Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of earned surplus, as indicated by
the accounting treatment of such dividend or distribution on the books of
the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
10
<PAGE>
(c) a dissolution, liquidation or winding-up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least 15 days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding-up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding-up or
sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made and sent when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of Representative's Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein that may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and that the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect (including,
without limitation, any decrease in the number or any change in the nature of
the securities purchasable upon the exercise of any Representative's Warrant, or
any increase in the Exercise Price therefor, other than such changes as are
prescribed in this Agreement as originally executed) except with the consent in
writing of the registered Holders representing no less than 66- 2/3% of the
Warrant Securities (as defined in Section 7.4(m) hereof).
15. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at 5:00 p.m. New York time
on the close of business on March __, 2002. Notwithstanding the foregoing, the
indemnification
11
<PAGE>
provisions of Section 7 hereof shall survive such termination until the close of
business on March __, 2007.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company and the Representative hereby agree that any action, proceeding
or claim against it arising out of, or relating in any way to, this Agreement
shall be brought and enforced in the courts of the State of New York or of the
United States of America for the Eastern District of New York, and irrevocably
submit to such jurisdiction, which jurisdiction shall be exclusive. The Company
and the Representative hereby irrevocably waive any objection to such exclusive
jurisdiction or inconvenient forum.
Any such process or summons to be served upon the Company or the
Representative (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company and the Representative agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except as provided in
Section 15 hereof.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement. The parties agree, however, that in the
event any provision of this Agreement shall be declared invalid or
unenforceable, the parties shall negotiate a new provision achieving to the
extent possible the purpose of the invalid provision.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement.
12
<PAGE>
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
APOLLO BIOPHARMACEUTICS, INC.
By:______________________________
Name:
Title:
FIRST UNITED EQUITIES CORPORATION
By:______________________________
Name:
Title:
[SEAL]
Attest:
______________________________
Secretary
13
<PAGE>
EX-A
Form of Warrant Certificate
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
No. W_____ VOID AFTER MARCH __, 2002
______________ WARRANTS
WARRANT CERTIFICATE TO
PURCHASE COMMON STOCK
___________________________
CUSIP____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants (the "Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $0.02 par value, of Apollo
BioPharmaceutics, Inc., a Delaware corporation (the "Company"), at any time from
March __, 1997 [the date of the Prospectus] (the "Initial Warrant Exercise
Date"), and prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Exercise Form on
the reverse hereof duly executed, at the corporate office of American Stock
Transfer and Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $_____, [130% of the initial public offering
price of the Common Stock] subject to adjustment (the "Exercise Price"), in
lawful money of the United States of America in cash or by certified or bank
check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Representative's Warrant Agreement (the "Warrant Agreement"),
dated March __, 1997 [date of the Prospectus], by and between the Company and
First United Equities Corporation. This Warrant Certificate is being issued upon
exercise of certain Representative's Warrants issued by the Company and dated as
of March __, 1997.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
14
<PAGE>
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional interests will be issued. In the case
of the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time)
on March ___, 2002 [the date which is the fifth anniversary of the Initial
Warrant Exercise Date]. If such date shall in the City of New York be a Saturday
or Sunday or a day on which banks are authorized or required to close (a
"Business Day"), then the Expiration Date shall mean 5:00 p.m. (New York time)
the next following Business Day.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
such securities is effective or unless, in the opinion of counsel to the
Company, an exemption thereunder is available. The Company has covenanted and
agreed that if any securities to be reserved for the purpose of exercise of the
Warrants represented hereby require registration with, or approval of, any
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will
file a registration statement under the federal securities laws or a
post-effective amendment, use its best efforts to cause the same to become or
remain effective and to keep such registration statement current while any of
the Warrants are outstanding and deliver a prospectus that complies with Section
10(a)(3) of the Securities Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon the presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder, as such, shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant
may be redeemed at the option of the Company, at a redemption price of $0.25 per
Warrant, at any time commencing after the Initial Warrant Exercise Date,
provided that (i) the average closing bid price for the Company's Common Stock
in the over-the-counter market as reported by the
15
<PAGE>
National Association of Securities Dealers Automated Quotation System, or (ii)
the closing sale price on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange, shall
have for 20 consecutive days on which such market is open for trading ending
within ten days prior to the Notice of Redemption, as defined below, equaled or
exceeded $_______ [200% of the initial public offering price of Common Stock]
per share (subject to adjustment in the event of any stock splits or other
similar events); provided, further that so long as this Warrant is held by the
Representative or an affiliate of the Representative, the Company may not redeem
this Warrant. Notice of redemption (the "Notice of Redemption") shall be given
by the Company not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no right with respect to
this Warrant except to receive the $0.25 per Warrant upon surrender on this
Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate may not be transferred for a period of
one year from the Initial Warrant Exercise Date, except to officers of the
Representative or to members of the Representative's selling group in the Public
Offering.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated __________, 19__.
SEAL APOLLO BIOPHARMACEUTICS, INC.
By: _________________________________
Name:
Title:
16
<PAGE>
By: _________________________________
Name:
Title:
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:______________________________
Authorized Officer
17
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________________
shares of Common Stock and herewith tenders in payment for such securities a
certified or official bank check payable in New York Clearing House Funds to the
order of APOLLO BIOPHARMACEUTICS, INC. (the "Company") in the amount of
$________________, all in accordance with the terms of Section 3.1 of the
Representative's Warrant Agreement dated as of March __, 1997 between the
Company and FIRST UNITED EQUITIES CORPORATION. The undersigned requests that a
certificate or certificates for such securities be registered in the name of
____________________ whose address is ____________ and whose social security or
taxpayer identification number is ____________________________________________
and that such certificate or certificates be delivered to
________________________ whose address is _______________________.
Dated: Signature _________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
___________________________________________________
(Insert Social Security or Other Identifying Number
of Holder)
18
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________________
shares of Common Stock in accordance with the terms of Section 3.2 of the
Representative's Warrant Agreement dated as of March __, 1997 between APOLLO
BIOPHARMACEUTICS, INC. and FIRST UNITED EQUITIES CORPORATION. The undersigned
requests that a certificate or certificates for such securities be registered in
the name of________________________ whose address is
_________________________________ and whose social security or taxpayer
identification number is __________________________, and that such certificate
or certificates be delivered to ________________________, whose address is
____________________________.
Dated: Signature _________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
___________________________________________________
(Insert Social Security or Other Identifying Number
of Holder)
19
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto
_____________________________________________________________
(Please print name and address of transferee)
______________________________ Representative's Warrants represented by this
Warrant Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _________________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature _________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
__________________________________________
(Insert Social Security or Other Identifying Number
of Assignee)
20
<PAGE>
Exhibit 10.17
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of March __, 1997, between First
United Equities Corporation ("First United") and Apollo BioPharmaceutics, Inc.,
a Delaware corporation, (the "Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company hereby engages First United for the term specified in
Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the terms
and conditions set forth herein.
2. Except as otherwise specified in Paragraph 7 hereof, this Agreement shall
be effective for a period of three years, commencing as of the date
hereof. Notwithstanding the foregoing, the parties hereby agree that the
Company may terminate this Agreement at any time upon thirty (30) days'
prior written notice; provided, that, any such termination of this
Agreement will not obligate First United to refund the fee paid by the
Company under Section 5 of this Agreement.
3. During the term of this Agreement, First United shall provide the Company
with such regular and customary consulting advice as is reasonably
requested by the Company in writing, on a project by project basis,
provided that First United shall not be required to undertake duties not
reasonably within the scope of the financial advisory services contemplated
by this Agreement. It is understood and acknowledged by the parties that
the value of First United's advice is not readily quantifiable, and that
First United shall be obligated to render advice upon the request of the
Company, in good faith, but shall not be obligated to spend any specific
amount of time in so doing. First United's duties may include, but will not
necessarily be limited to, providing recommendations concerning the
following financial and related matters:
A. Disseminating information about the Company to the investment
community at large;
B. Rendering advice and assistance in connection with the preparation of
annual and interim reports and press releases;
C. Assisting in the Company's financial public relations;
D. Arranging, on behalf of the Company, at appropriate times, meetings
with securities analysts of major regional investment banking firms;
E. Rendering advice with regard to internal operations, including:
1
<PAGE>
1. the formation of corporate goals and their implementation;
2. the Company's financial structure and its divisions or
subsidiaries;
3. securing, when and if necessary and possible, additional
financing through
banks and/or insurance companies; and
4. corporate organization and personnel; and
F. Rendering advice with regard to any of the following corporate
finance matters:
1. changes in the capitalization of the Company;
2. changes in the Company's corporate structure;
3. redistribution of shareholdings of the Company's stock;
4. offerings of securities in public transactions;
5. sales of securities in private transactions;
6. alternative uses of corporate assets;
7. structure and use of debt; and
8. sales of stock by insiders pursuant to Rule 144 under the
Securities Act
of 1933, as amended, or otherwise.
In addition to the foregoing, First United agrees to furnish advice to the
Company in connection with (i) the acquisition and/or merger of or with
other companies, divestiture or any other similar transaction, or the sale
of the Company itself (or any significant percentage, assets, subsidiaries
or affiliates thereof), and (ii) bank financings or any other financing
from financial institutions (including but not limited to lines of credit,
letters of credit, loans or other financings not provided for in Paragraph
5 hereof).
Notwithstanding the foregoing, it is hereby acknowledged and agreed that
the Company is under no obligation to follow any advice rendered by First
United under this Agreement.
4. First United shall render such other financial advisory and investment
and/or investment banking services as may from time to time be agreed upon
by First United and the Company.
5. In consideration for the services rendered by First United to the Company
pursuant to this Agreement (and in addition to the expenses provided for in
Paragraph 8 hereof), the Company shall pay to First United, on the date
hereof, $108,000 as compensation for the services to be provided hereunder
by First United.
6. Fees and expenses payable to First United with regard to fairness opinions
and valuations, will be determined by mutual agreement at such time as the
nature and terms of the relevant transaction are affirmed.
7. In addition to the fees payable hereunder, the Company shall reimburse
First United for all reasonable and necessary fees and disbursements of
First United's counsel and First United's reasonable and necessary travel
and out-of-pocket expenses incurred in connection with services rendered by
First United for projects which are approved by the Company in accordance
with Section 3 of this Agreement upon presentation by First United of
documentation, expense statements, vouchers and/or other such supporting
2
<PAGE>
information as the Company may reasonably request. Such expenses may
include, without limitation, hotel, food and associated expenses and
long-distance telephone calls.
8. (a) The Company acknowledges that all opinions and advice (written or oral)
given by First United to the Company in connection with First United's
engagement are intended solely for the benefit and use of the Company and
the Company's officers, directors, agents and employees in considering the
transaction to which they relate, and the Company agrees that no person or
entity other than the Company and the Company's officers, directors, agents
and employees shall be entitled to make use of or rely upon the advice of
First United to be given hereunder, and no such opinion or advice shall be
used for any other purpose or reproduced, disseminated, quoted or referred
to at any time, in any manner or for any purpose, nor may the Company make
any public references to First United, or use First United's name in any
annual reports or any other reports or releases of the Company without
First United's prior written consent, which consent shall not be reasonably
withheld.
(b) The Company acknowledges that First United makes no commitment to make
a market in the Company's securities and that none of First United's
affiliates makes any commitment whatsoever as to making a market in the
Company's securities or to recommending or advising its clients to purchase
the Company's securities. Research reports or corporate finance reports
that may be prepared by First United will, when and if prepared, be done
solely on the merits or judgment of analysts of First United or any senior
corporate finance personnel of First United.
9. The Company acknowledges that First United and its affiliates are in the
business of providing financial services and consulting advice to others.
Nothing herein contained shall be construed to limit or restrict First
United in conducting such business with respect to others, or in rendering
such advice to others.
10. The Company recognizes and confirms that, in advising the Company and in
fulfilling its engagement hereunder, First United will use and rely on
data, material and other information furnished to First United by the
Company. The Company acknowledges and agrees that in performing its
services under this engagement, First United may rely upon the data,
material and other information supplied by the Company without
independently verifying the accuracy, completeness or veracity of same.
11. Since First United will be acting on behalf of the Company in connection
with its engagement hereunder, the Company and First United have entered
into a separate indemnification agreement substantially in the form
attached hereto as Schedule A and dated the date hereof, providing for the
indemnification of First United by the Company. First United has entered
into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.
12. First United represents and warrants to the Company that First United
currently has no agreement with, nor any other obligation to, any third
party that would materially impact
3
<PAGE>
First United's ability to perform its obligations under this Agreement, nor
shall First United enter into any such agreement nor incur such an
obligation without the prior written consent of the Company. First United
further represents that the performance of the services hereunder will not
breach any agreement or obligation with any third party, including without
limitation any obligation to refrain from engaging in activities that may
compete with such party.
13. First United acknowledges that its relationship with the Company is one of
high trust and confidence and that, in the course of its service to the
Company, it will have access to and have contact with Proprietary
Information. First United agrees that it will not, during the term of this
Agreement or at any time thereafter, disclose to others, or use for its
benefit or the benefit of others, any Proprietary Information. For purposes
of this Agreement, "Proprietary Information" shall mean, by way of
illustration and not limitation, all information (whether or not patentable
and whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, formula, vendor information,
customer information, apparatus, equipment, trade secret, process,
research, report, technical data, know-how, computer program, software,
software documentation, hardware design, technology, marketing or business
plan, forecast, unpublished financial statement, budget, license, price,
cost and employee list that is communicated to, discovered, developed or
otherwise acquired by First United in the course of its service as a
consultant to the Company.
First United's obligations under this Section 13 shall not apply to any
information that (i) is or becomes known to the general public under
circumstances involving no breach by First United of the terms of this
Section 13, (ii) is generally disclosed to third parties by the Company
without restriction on such third parties, or (iii) is approved for release
by written authorization of the Board of Directors of the Company.
Upon termination of this Agreement, First United shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports,
price lists, customer lists, drawings, plans, computer programs, software,
software documentation, sketches, laboratory and research notebooks and
other documents (and all copies or reproductions of such materials)
relating to the business of the Company.
First United represents that its retention as a consultant to the Company
and its performance under this Agreement does not, and shall not, breach
any agreement that obligates it to keep in confidence any trade secrets or
confidential or proprietary information of its or of any other party or to
refrain from competing, directly or indirectly, with the business of any
other party. First United shall not disclose to the Company any trade
secrets or confidential or proprietary information of any other party.
First United acknowledges and agrees that any breach of the provisions of
this Section 13 shall result in serious and irreparable injury to the
Company for which the Company cannot be adequately compensated by monetary
damages alone. First United agrees, therefore, that, in addition to any
other remedy it may have, the Company shall be
4
<PAGE>
entitled to enforce the specific performance of this Agreement by First
United and to seek both temporary and permanent injunctive relief (to the
extent permitted by law) without the necessity of proving actual damages.
14. Since First United will be acting on behalf of the Company in connection
with its engagement hereunder, the Company and First United have entered
into a separate indemnification agreement substantially in the form
attached hereto as Schedule A and dated the date hereof, providing for the
indemnification of First United by the Company. First United has entered
into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.
15. First United shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof.
Any duties of First United arising out of its engagement hereunder shall be
owed solely to the Company. It is expressly understood and agreed to by the
parties hereto that First United shall have no authority to act for,
represent or bind the Company or any affiliate thereof in any manner,
except as may be agreed to expressly by the Company in writing from time to
time.
16. First United hereby designates Van Gothner as its initial contact person
for purposes of this Agreement. The parties hereby agree that such contact
person may be changed from time to time by First United upon 5 days' prior
written notice to the Company.
(a) This Agreement and the Exhibit attached hereto constitute the entire
agreement and understanding of the parties hereto, and supersede any
and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth
herein.
(b) Any notice or communication permitted or required hereunder shall be
in writing and shall be deemed sufficiently given if hand-delivered or
sent (i) postage prepaid by registered mail, return receipt requested,
or (ii) by facsimile, to the respective parties as set forth below, or
to such other address as either party may notify the other of in
writing;
If to the Company, to: Apollo BioPharmaceutics, Inc.
One Kendall Square, Building 200, Suite 2200
Cambridge, Massachusetts 02139
Attn: Chief Executive Officer
with a copy to: Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attn: Michael Lytton, Esq.
5
<PAGE>
If to First United, to: First United Equities Corporation
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Attn: _____________________
with a copy to: Rubin Baum Levin Constant Friedman & Bilzin
200 South Biscayne Boulevard, Suite 2500
Miami, Florida 33131-2336
Attn: Harold E. Berritt, Esq.
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each of
which together shall continue one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, without giving effect to its
conflict of law principles. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this
Agreement shall be adjudicated before a court located in New York
City, and they hereby submit to the exclusive jurisdiction of the
courts of the State of New York located in New York, New York and of
the federal courts in the Southern District of New York with respect
to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such
a court or respecting the fact that such court is an inconvenient
forum, relating to or arising out of this Agreement, and consent to
the service of process in any such action or legal proceeding by means
of registered or certified mail, return receipt requested, in care of
the address set forth in Paragraph 14(b) hereof.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT.
FIRST UNITED EQUITIES CORPORATION
By: _______________________________________
Name:
Title:
APOLLO BIOPHARMACEUTICS, INC.
6
<PAGE>
BY: _______________________________________
Name:
Title:
7
<PAGE>
Schedule A
First United Equities Corporation
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Attn: _____________________
Ladies and Gentlemen:
In connection with our engagement of First United Equities Corporation
("First United") as our financial advisor and investment banker, we hereby agree
to indemnify and hold harmless First United and its affiliates, and the
respective directors, officers, shareholders, agents and employees of First
United and its affiliates (collectively the "Indemnified Persons"), from and
against any and all claims, actions, suits, proceedings (including those of
stockholders), damages, liabilities, costs and expenses as incurred by any of
them (including the fees and expenses of counsel) which are (A) related to or
arise out of (i) any actions taken or omitted to be taken (including any untrue
statements made or any statements omitted to be made) by the Company during the
term of the Financial Advisory Agreement (including any extension of the term
thereof), or (ii) any actions taken or omitted to be taken by any Indemnified
Person which were requested by the Company during the term of the Financial
Advisory Agreement (including any extension of the term thereof) in connection
with our engagement of First United, or (B) otherwise relate to or arise out of
First United's activities on our behalf under First United's engagement, and we
shall reimburse any Indemnified Person for all costs and expenses (including the
fees and expenses of counsel) as incurred by such Indemnified Person in
connection with investigating, preparing or defending any such claim, action,
suit or proceeding (collectively a "Claim"), whether or not in connection with
pending or threatened litigation in which any Indemnified Person is a party. We
will not, however, be responsible for any Claim to the extent that it is finally
judicially determined by a court of competent jurisdiction to have resulted from
the negligence, bad faith or misconduct of any person seeking indemnification
hereunder. We further agree that no Indemnified Person shall have any liability
to us for or in connection with our engagement of First United except to the
extent any Claim is determined in a final judgment by a court of competent
jurisdiction to have directly resulted from any Indemnified Person's negligence,
bad faith or misconduct.
We further agree that we will not, without the prior written consent of
First United, settle, compromise or consent to the entry of any judgment in any
pending or threatened Claim in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Person is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes an
unconditional, irrevocable release of each Indemnified Person hereunder from any
and all liability arising out of such Claim.
8
<PAGE>
Promptly upon receipt by an Indemnified Person of notice of any complaint
or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless and only to the extent such failure results in the forfeiture by us of
substantial rights and defenses, and will not in any event relieve us from any
other obligation or liability we may have to any Indemnified Person otherwise
than under this Agreement. If we so elect or are requested by such Indemnified
Person, we will assume the defense of such Claim, including the employment of
counsel reasonably satisfactory to such Indemnified Person and the payment of
the fees and expenses of such counsel. In the event, however, that such
Indemnified Person reasonably determines in its sole judgment that having common
counsel would present such counsel with a conflict of interest or if the
defendant in, or target of, any such Claim, includes an Indemnified Person and
us, and such Indemnified Person reasonably concludes that there may be legal
defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the fees and expenses of such counsel. Notwithstanding anything herein to
the contrary, if we fail timely or diligently to defend, contest, or otherwise
protect against any Claim, the relevant Indemnified Person shall have the right,
but not the obligation, to defend, contest, compromise, settle, assert
crossclaims, or counterclaims or otherwise protect against the same, and shall
be fully indemnified by us therefor, including without limitation, for the fees
and expenses of its counsel and all amounts paid as a result of such Claim or
the compromise or settlement thereof. In any Claim in which we assume the
defense, the Indemnified Person shall have the right to participate in such
Claim and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person hereunder is
held by a court to be unavailable for any reason, then (whether or not First
United is the Indemnified Person), we and First United shall contribute to the
Claim for which such indemnity is held unavailable in such proportion as is
appropriate to reflect (i) the relative benefits to us, on the one hand, and
First United on the other, in connection with First United's engagement referred
to above or (ii) if (but only if) the allocation provided for in clause (i) is
for any reason held unenforceable, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of us, on the one hand, and First United, on the other, as well
as any other relevant equitable considerations, subject to the limitation that
in no event shall the amount of First United's contribution to such Claim exceed
the amount of fees actually received by First United from us pursuant to First
United's engagement. We hereby agree that the relative benefits to us, on the
one hand, and First United on the other, with respect to First United's
engagement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our stockholders as the case
may be, pursuant to the transaction (whether or not consummated) for which you
are engaged to render services bears to (b) the fee paid or proposed to be paid
to First United in connection with such engagement.
9
<PAGE>
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any Indemnified Party may have at law or at
equity.
Should First United or its personnel be required or requested by us to
provide documentary evidence or testimony in connection with any proceeding
arising from or relating to First United's engagement, we agree to pay all
reasonable expenses (including fees incurred for legal counsel) in complying
therewith and $5,000 per day for sworn testimony or preparation therefor,
payable in advance.
We hereby consent to personal jurisdiction and service of process and venue
in any court in which any claim for indemnity is brought by any Indemnified
Person.
It is understood that, in connection with First United's engagement, First
United may be engaged to act in one or more additional capacities and that the
terms of the original engagement or any such additional engagement may be
embodied in one or more separate written agreements. The provisions of this
Agreement shall apply to the original engagement, any such additional engagement
and any modification of the original engagement or such additional engagement
and shall remain in full force and effect following the completion or
termination of First United's engagement(s).
Very truly yours,
APOLLO BIOPHARMACEUTICS, INC.
By: _______________________________________
Name:
Title:
Confirmed and agreed to:
FIRST UNITED EQUITIES CORPORATION
By: _________________________________
Name:
Title:
10
<PAGE>
EXHIBIT 11
APOLLO BIOPHARMACEUTICS, INC.
STATEMENT RE: COMPUTATION OF LOSS PER SHARE
Year ended
December 31,
----------------
1994 1995 1996
---- ---- ----
Net loss ................... $(523,007) $(392,149) $(403,391)
--------- --------- ---------
--------- --------- ---------
Weighted average common
shares outstanding......... 3,005,959 3,130,068 3,531,000
"Cheap" stock issued
November 30, 1995 to
December 20, 1996.......... 654,555 654,555 654,555
--------- --------- ---------
3,660,514 3,784,623 4,185,555
--------- --------- ---------
--------- --------- ---------
Net loss per share.......... $(.14) $(.10) $(.10)
------ ------ ------
------ ------ ------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to inclusion in this Registration Statement on Form SB-2 of
our report dated February 4, 1997. We also consent to the reference to our
firm under the caption "Experts" in the Prospectus.
RICHARD A. EISNER & COMPANY, LLP
Cambridge, Massachusetts
March 17, 1997
