<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. JOHN G. HERBERT, ESQ.
Palmer & Dodge LLP JOHN G. HERBERT, P.C.
One Beacon Street 310 Plaza Level
Boston, Massachusetts 1675 Larimer Street
02108-3190 Denver, Colorado 80202-1521
(617) 573-0100 (303) 534-0522
</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 AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE FEE(5)
<S> <C> <C> <C> <C>
Units, each consisting of two shares of Common
Stock, $.02 par value per share, and a Warrant
to purchase one share of Common Stock.......... 575,000 $10.25(2) $5,893,750(1)(2) $1,785.99
Warrants to purchase Units....................... 50,000 $0.002 $100 $0.03
Units, each consisting of two shares of Common
Stock, $.02 par value per share, and a Warrant
to purchase one share of Common Stock.......... 50,000 $12.30(2) $615,000(2) $186.37
Warrants to purchase Common Stock................ 625,000 (3) -- --
Common Stock, $.02 par value per share(4)........ 625,000 $6.50(2) $4,062,500(2) $1,231.06
Common Stock, $.02 par value per share........... 1,250,000 (3) -- --
</TABLE>
(1) Includes 75,000 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 warrants.
(5) A registration fee of $5,654.90 was previously paid in connection with the
original filing of the applicant's Registration Statement on Form SB-2 (Reg.
No. 333-18769) on December 24, 1996. Pursuant to Rule 429(b), no additional
registration fee is being paid herewith.
------------------------
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>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-18769
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 29, 1997.
500,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
--------------------------
Apollo BioPharmaceutics, Inc. (the "Company") is hereby offering 500,000
units ("Units"), each Unit consisting of two shares 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 $6.50 per share, subject to adjustment under certain
circumstances. Neither the Common Stock nor the Warrants may be separately
traded or transferred until 12 months after the date of this Prospectus or such
earlier date as may be determined by Neidiger/Tucker/Bruner, Inc. and Westport
Resources Investment Services, Inc. (the "Representatives") as Representatives
of the participating underwriters (the "Underwriters"). See "Description of
Securities". 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 sale prices of the Common Stock shall equal or exceed $10.00 per
share 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. The Common Stock and the Warrants have been
approved for quotation on the Nasdaq SmallCap-SM- Market under the symbols
"ABPI" and "ABPIW," respectively. The Company intends to apply for listing of
the Common Stock and the Warrants on the Boston Stock Exchange under the symbols
"ABPI" and "ABPIW", respectively. The Company also intends to apply for listing
of the Units on the Nasdaq Small Cap-SM- Market and the Boston Stock Exchange
under the symbol "ABPIU".
--------------------------
THE UNITS OFFERED HEREBY ARE -SPECULATIVE AND 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................................................. $10.25 $1.025 $9.225
Total(3)................................................. $5,125,000 $512,500 $4,612,500
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representatives in the form of (i) a non-accountable expense allowance equal
to 3% of the gross proceeds of this offering, (ii) five-year warrants (the
"Representatives' Warrants") entitling the Representatives to purchase up to
an aggregate of 50,000 Units at an exercise price of $12.30 per Unit, (iii)
a commission equal to 5% of the exercise price of Warrants exercised after
one year from the date of this Prospectus, and (iv) a three-year consulting
agreement with the Company providing for a total fee of $70,000. 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 Representatives' non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 75,000 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 $5,893,750,
$589,375, and $5,304,375, 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 certificates representing the Units will be made
against payment on or about May , 1997.
NEIDIGER/TUCKER/BRUNER, INC. WESTPORT RESOURCES INVESTMENT
SERVICES, INC.
The date of this Prospectus is April , 1997
<PAGE>
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS" WITHIN
THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE
COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, PENSION AND PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES,
WHICH, TOGETHER WITH SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET
WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY
AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING, (3) ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A
CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST
$1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, OR (4) ANY NATURAL
PERSON WHO (A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000 OR (B) HAS A
NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE SECURITIES
OFFERED HEREBY WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA
RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES
AND WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING
SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
FOR UNITED KINGDOM RESIDENTS ONLY
THE SECURITIES REFERRED TO IN THIS DOCUMENT MAY NOT BE OFFERED OR SOLD TO
PERSONS IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY ACTIVITIES
INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS
PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESSES OR OTHERWISE IN
CIRCUMSTANCES WHICH HAVE NOT RESULTED AND WILL NOT RESULT IN AN OFFER TO THE
PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE PUBLIC OFFERS OF
SECURITIES REGULATIONS 1995. THIS DOCUMENT MAY ONLY BE ISSUED OR PASSED ON IN
THE UNITED KINGDOM BY A PERSON WHO IS NOT AUTHORIZED FOR THE PURPOSES OF THE
FINANCIAL SERVICES ACT 1986 (AND PROVIDED THEN ONLY IF THAT UNAUTHORIZED PERSON
IS NOT UNLAWFULLY CARRYING ON INVESTMENT BUSINESS IN THE UNITED KINGDOM) TO A
PERSON WHO IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT
1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996 OR IS A PERSON TO WHOM
SUCH DOCUMENT MAY OTHERWISE BE LAWFULLY ISSUED OR PASSED ON.
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 3 1/3-FOR-1 REVERSE STOCK SPLIT OF
THE OUTSTANDING COMMON STOCK WHICH WAS COMPLETED ON DECEMBER 20, 1996 AND A
1.55-FOR-ONE REVERSE STOCK SPLIT OF THE COMPANY TO BE EFFECTED ON OR BEFORE THE
EFFECTIVE DATE OF THIS PROSPECTUS 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..... 500,000 Units, each Unit consisting of two shares of
Common Stock and a Warrant to purchase one share of
Common Stock at an offering price of $10.25 per Unit.
Neither the Common Stock nor the Warrants may be
separately traded or transferred until 12 months after
the date of this Prospectus or such earlier date as may
be determined by the Representatives. See "Description
of Securities."
Terms of Warrants................. Each Warrant entitles the holder to purchase one share
of Common Stock, for an exercise price of $6.50, 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.......... 2,719,985 shares(1)
After this Offering............. 3,719,985 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 and Boston Stock Exchange
Symbols(2)...................... ABPIU; ABPI; ABPIW.
</TABLE>
- ------------------------
(1) Does not include the possible issuance of (i) 387,096 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) 58,064 shares reserved for issuance upon the exercise of options
granted or available for grant under the Company's 1996 Director Stock
Option Plan; (iii) 232,256 shares of Common Stock reserved for issuance upon
exercise of certain warrants previously issued by the Company; (iv) 101,381
shares issuable upon exercise of a convertible right to receive royalties;
(v) 500,000 shares of Common Stock reserved for issuance upon exercise of
the Warrants to be issued in this offering; (vi) 75,000 Units reserved for
issuance upon exercise of the Underwriters' over-allotment option; and (vii)
50,000 Units reserved for issuance upon exercise of the Representatives'
Warrants. See "Management;" "Certain Transactions;" "Description of
Securities;" and "Underwriting." Also excludes 27,649 shares repurchased by
the Company in March 1997. See Note H of Notes to Financial Statements.
(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."
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....................................................... $ (.22) $ (.17) $ (.15)
Weighted Average number of shares outstanding............................ 2,361,621 2,441,692 2,700,358
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
AS
ACTUAL ADJUSTED(1)
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,254,250 $ 5,495,915
Working capital..................................................................... 955,071 5,196,736
Total assets........................................................................ 1,477,763 5,500,263
Stockholders' equity 998,584 5,021,084
</TABLE>
(1) Adjusted to reflect the sale by the Company of the 500,000 Units offered
hereby at a public offering price of $10.25 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
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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 sublicense 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 sublicense 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 several 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
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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
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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
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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
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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
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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.
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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 20.2% 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 Representatives' 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; DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Units,
the Common Stock or the Warrants. There can be no assurance that an active
trading market will develop for the Units or, if one does develop, that it will
be maintained. Neither the Common Stock nor the Warrants may be separately
traded or transferred until 12 months after the date of this Prospectus or such
earlier date as may be determined by the Representatives. There can be no
assurance that an active trading market will develop with respect to the Common
Stock or the Warrants at such time 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 Representatives and may not be indicative of prices that will prevail in the
public trading market. See "Underwriting."
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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 3,719,985 shares of Common Stock
outstanding, assuming no exercise of options or warrants after April , 1997
and assuming no exercise of the Underwriters' over-allotment option. Of these
outstanding shares of Common Stock, the 1,000,000 shares sold in this offering
as part of the Units will not be separately tradeable until 12 months after the
date of this Prospectus or such earlier date as may be determined by the
Representatives. The remaining 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 publicly offer, sell, contract to sell,
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 Representatives. Upon expiration of the lock-up agreements, all shares of
Common Stock currently outstanding will be immediately eligible for resale,
subject to the requirements of Rule 144. As of April , 1997, shares were
subject to outstanding options, warrants and conversion rights, all of which are
subject to the lock-up agreements described above. Immediately following the
completion of this offering, 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 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."
15
<PAGE>
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 sale 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 $10.00
per share. 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 $3.78. 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
The Company expects that the Units offered hereby will be qualified for
initial listing on both the Nasdaq SmallCap-SM- Market and the Boston Stock
Exchange. There can be no assurance, however, that the Company will be able to
meet the criteria for continued listing by these organizations in the future.
Such criteria, which are subject to change from time to time, currently include
certain corporate governance standards, minimum share value requirements and
minimum net tangible asset valuation requirements, among others. If the Company
became unable to meet the continued listing criteria of the Nasdaq SmallCap-SM-
Market and the Boston Stock Exchange because of continued operating losses or
otherwise and became delisted therefrom, trading, if any, in the Units, or,
after they begin to trade separately, 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 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
16
<PAGE>
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."
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby are estimated
to be $4,022,500 ($4,691,313 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $10.25 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 $2.4 million of
the net proceeds of this offering to fund future development of products, of
which approximately $1.5 million will be used for sponsored research,
approximately $700,000 will be used to establish a small laboratory facility and
approximately $230,000 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.
17
<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 500,000 Units offered hereby, after
deducting the underwriting discount and offering expenses, at an initial public
offering price of $10.25 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, 2,719,985 shares
issued, actual; 3,719,985 shares issued, as adjusted........................... 54,400 74,400
Additional paid-in capital....................................................... 2,720,036 6,722,536
Deficit accumulated during the development stage................................. (1,775,852) (1,775,852)
------------- --------------
Total stockholders' equity....................................................... 998,584 5,021,084
------------- --------------
Total capitalization............................................................. $ 998,584 $ 5,021,084
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Does not include (a) Units issuable upon the exercise of the Underwriters'
over-allotment option, (b) Units issuable upon exercise of the
Representatives' Warrants, or (c) 573,631 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 $2.67 per
share. See "Management--Stock Option Plans"; "Description of
Securities--Other Warrants and Convertible Notes."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$778,807 or approximately $0.29 per share. Net tangible book value per share
represents the total tangible assets of the Company, less total liabilities,
divided by 2,719,985 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 500,000 Units offered hereby at a public offering price of $10.25 per
Unit, the net tangible book value of the Company as of December 31, 1996 would
have been $5,020,472, or $1.35 per share. This represents an immediate increase
in the net tangible book value of $1.06 per share to existing stockholders of
the Company and an immediate dilution of $3.78 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.................................... $ 5.13
Net tangible book value per share at December 31, 1996........ 0.29
Increase per share attributable to new investors.............. 1.06
---------
Net tangible book value per share after the offering..................... 1.35
---------
Dilution per share to new investors...................................... $ 3.78
---------
---------
</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.
<TABLE>
<CAPTION>
SHARES PURCHASED CASH CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 2,719,985 73.1% $ 2,811,000 35.4% $ 1.03
New Investors..................................... 1,000,000 26.9 5,125,000 64.6 5.13
---------- ----- ------------ -----
Total......................................... 3,719,985 100.0% $ 7,936,000 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The above information excludes (a) Units issuable upon the exercise of
the Underwriters' over-allotment option, (b) shares of Common Stock issuable
upon exercise of the Representatives' Warrants and (c) an aggregate of 573,631
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 $2.67 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.
19
<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)................................................. $ (.22) $ (.17) $ (.15)
Weighed average number of shares outstanding (1)....................... 2,361,621 2,441,692 2,700,358
</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 $ 5,495,915
Working capital.................................................... 34,798 955,071 5,196,736
Total assets....................................................... 248,382 1,477,763 5,500,263
Notes payable...................................................... 204,400 -- --
Deferred credit.................................................... -- 180,000 180,000
Total stockholders' equity (deficit)............................... $ (167,941) $ 998,584 $ 5,021,084
</TABLE>
- ------------------------
(1) In each case, gives effect to a 3 1/3 to 1 reverse stock split effective
December 20, 1996 and a 1.55 to 1 reverse stock split to be effective on or
before the date of the closing of this offering.
(2) Gives effect to the sale of 500,000 Units offered by the Company hereby at
an initial public offering price of $10.25 per Unit, after deducting the
underwriting discount and offering expenses.
20
<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.
21
<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 138,249 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 48,387 shares of Common Stock.
On December 31, 1996, the Company's cash and cash equivalents totaled
$1,254,250.
22
<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 April 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.
23
<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.
24
<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.
25
<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 plaques
shrinkage and neurofibrillary
-Few amyloid plaques tangles
-Few neurofibrillary
tangles
Cerebral Cortex -Large neurons shrink or -Neurons die -Lewy bodies
die -Extensive amyloid
-Few amyloid plaques plaques
-Few neurofibrillary -Extensive neurofibrillary
tangles tangles
Basal Forebrain -Shrinkage of neurons -Loss of cholinergic -Some loss of cholinergic
-Decline in acetylcholine neurons neurons
content -Extensive loss of acetyl-
choline
Substantia Nigra -Gradual loss of dopamine -Extensive loss of DA
and Basal (DA) neurons in the neurons in substantia
Ganglia substantia nigra nigra
-Gradual decline of DA -Lewy bodies
receptors in basal ganglia
Locus Coeruleus -Significant but gradual -Loss of neurons in some -Loss of neurons
loss of neurons with cases -Lewy bodies
aging
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 sponsoring a study to evaluate the
effectiveness of a certain commercially-marketed estrogen product in
post-menopausal women with Alzheimer's disease.
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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 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.
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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.
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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.
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(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.
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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
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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.
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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.
Certain of the drug delivery technology licensed to the Company by
Endocon includes patents licensed by Endocon from Aberlyn Capital Management
under the terms of an agreement executed by Endocon in 1994. The Company and
Endocon are currently in discussions regarding the execution of a sublicense
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
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<PAGE>
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, 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
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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 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 14
patents and one pending application.
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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 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.
36
<PAGE>
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 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
37
<PAGE>
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.
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
38
<PAGE>
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 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 April , 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
On April 2, 1997, the Company filed suit against First United Equities
Corporation ("FUE") and certain other underwriting firms in the Middlesex
Superior Court of the Commonwealth of Massachusetts, alleging that FUE breached
the terms of an underwriting agreement between FUE, for itself as lead
underwriter and for certain other underwriters, and the Company in connection
with a public offering of the Company's securities. The complaint seeks specific
performance of the Underwriting Agreement, as well as treble damages, attorneys'
fees and costs. On April 25, 1997, the Company filed a stipulation of dismissal
which dismissed Neidiger/Tucker/Bruner, Inc. with prejudice from the action and
expects to reach similar agreements with all of the other underwriting firms,
other than FUE, in the near future. No further actions have been taken with
respect to this suit. The Company does not believe that the resolution of this
matter will have a material adverse effect on its business, financial condition
or results of operations.
Except as set forth above, the Company is not a party to any legal
proceedings.
39
<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
40
<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. MITCHELL HARMAN is Chief of the Endocrinology Section at the
National Institute on Aging and Associate Professor of Medicine at Johns Hopkins
University. Dr. Harman's major research interests relate to the therapeutic uses
of hormone replacement therapy for treatment of geriatric patients. He has been
very active in designing and implementing clinical therapeutic protocols for
hormone replacement therapy and is currently involved in a major study
evaluating long-term interactive effects of growth hormore and sex steroid
(estrogen and progesterone) replacement on bone and muscle in the elderly. Dr.
Harman received his M.D. and Ph.D. degrees from the State University of New
York.
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.
41
<PAGE>
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 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 unless either 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. The agreement also provides that, if Dr.
Gordon's employment is terminated by the Company prior to a scheduled
termination date, or if she terminates the agreement without cause, then Dr.
Gordon may not compete with the Company for a period of two years thereafter.
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.
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<PAGE>
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 387,096 shares of the Company's Common Stock to key 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 58,064 shares of the Company's Common Stock. Under the Director
Plan, options to purchase 5,805 shares of Common Stock are automatically granted
to each participating Eligible Director
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<PAGE>
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 1,935 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 1,935 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 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) 48,387 --
President and Chief Executive Officer 1996 $ 115,000 $ 25,000(2) 19,354 --
</TABLE>
- ------------------------
(1) A portion of Dr. Gordon's salary in the amount of $65,000 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 48,387 45.5% $ 1.29 11/29/05 $ 39,255 $ 99,480
1996 19,354 66.7 4.14 11/1/06 50,390 127,699
</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.
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<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 138,249 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 67,741 shares of Common Stock
at an exercise price of $3.61 per share and (ii) warrants to purchase 29,032
shares of Common Stock at an exercise price of $4.52 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) $4.52 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)
$5.42 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 336,403
shares of the Company's Common Stock (or approximately 8.6% 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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock as of April , 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) .............................................. 336,403 11.6% 336,403 8.6%
c/o MDS Associes--Neuroscience Inc.
100 International Boulevard
Etobicoke, Ontario
Alan Gelband(4) ..................................................... 338,709 12.5 338,709 9.1
c/o Gelband Capital
575 Madison Avenue--8th Floor
New York, New York
Katherine Gordon, Ph.D.(5) .......................................... 308,901 11.1 308,901 8.2
Donna B. Cohen ...................................................... 231,870 8.6 231,870 6.3
3311 N.E. 26th Avenue
Lighthouse Point, Florida
Michael J. Callaghan(6).............................................. 336,403 11.6 336,403 8.6
Theodore J. Gordon(7)................................................ 108,386 4.0 108,386 2.9
Robert J. Leonard(8)................................................. 58,064 2.1 58,064 1.5
George W. Masters(9)................................................. 1,935 * 1,935 *
Donald L. Weise(9)................................................... 1,935 * 1,935 *
All directors and executive officers as a group (7 persons)(10)...... 820,462 26.8% 820,462 20.2%
</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) 96,773 shares subject to warrants currently exercisable or
exercisable within the 60-day period following April , 1997, and (ii)
101,381 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.
46
<PAGE>
(4) Includes (i) 9,677 shares and 9,677 additional shares subject to warrants
currently exercisable or exercisable within the 60-day period following
April , 1997, each held of record by the Alden Foundation, and (ii)
29,032 shares of Common Stock owned by the Alan Gelband Company Defined
Contribution Pension Plan & Trust.
(5) Includes 77,418 shares subject to stock options and 9,677 shares subject
to warrants, each currently exercisable or exercisable within the 60-day
period following April , 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 1,935 shares subject to stock options and 9,677 shares subject to
warrants, each currently exercisable or exercisable within the 60-day
period following April , 1997. Mr. Gordon disclaims beneficial ownership
of shares beneficially owned by his daughter, Dr. Katherine Gordon.
(8) Consists of 58,064 shares subject to stock options currently exercisable
or exercisable within the 60-day period following April , 1997.
(9) Consists of 1,935 shares subject to stock options currently exercisable or
exercisable within the 60-day period following April , 1997.
(10) Includes (i) 136,451 shares subject to stock options currently exercisable
or exercisable within the 60-day period following April , 1997, (ii)
116,129 shares subject to warrants currently exercisable or exercisable
within 60-day period following April , 1997, and (iii) 101,381 shares
currently issuable upon conversion of a right to receive future royalty
payments.
47
<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 approximately 70 stockholders. Upon
the closing of this offering, the Company will have 3,719,985 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 two shares 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 500,000 Warrants
outstanding as part of the Units, assuming that the Underwriters' over-allotment
option is not exercised and assuming that none of the Warrants is exercised.
48
<PAGE>
The holder of each Warrant is entitled to purchase one share of Common
Stock at an exercise price of $6.50. The Warrants are exercisable at any time
after issuance until the fifth anniversary of the 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 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 sale
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 $10.00 per share (subject to adjustment). For these
purposes, the closing sale price of the Common Stock shall be determined by the
closing sale 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.
Upon exercise of the Warrants, at any time after the first anniversary
of the date of this Prospectus, the Representatives 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 Representatives 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 Representatives.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and the number of shares issuable
upon exercise 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 then current market value of
any fractional shares. 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 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 87,096 shares of the Company's Common Stock
exercisable at $1.55 per share. In connection with the 1995 Bridge Financing,
the Company
49
<PAGE>
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 48,387
shares of the Company's Common Stock exercisable at $1.55 per share. In
September 1996, the 1994 Notes were converted into 87,096 shares of Common Stock
and, in December 1996, the 1995 Notes were converted into 48,387 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 67,741 shares of Common Stock at an exercise price of $3.61
per share and (ii) warrants to purchase 29,032 shares of Common Stock at an
exercise price of $4.52 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) $4.52 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) $5.42 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 336,403 shares of the Company's Common
Stock (or approximately 8.6% 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 387,096 shares of Common Stock for issuance
under the 1993 Option Plan, of which 222,575 shares are subject to outstanding
options, and 58,064 shares of Common Stock for issuance under the Director Plan,
of which 17,419 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.
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
50
<PAGE>
"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 138,249 shares of Common Stock, warrants to
purchase 96,773 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
138,249 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, New York, New York.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,719,985 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options. Of these shares, the
1,000,000 shares sold in this offering as part of the Units may not be
separately traded or transferred until 12 months after the date of this
Prospectus or such earlier date as may be determined by the Representatives.
The remaining 2,719,985 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"). These may not be resold, except
pursuant to an effective registration statement or an applicable exemption from
registration. Of these remaining shares, approximately shares will be
eligible for sale under Rule 144 on the Effective Date. Stockholders of the
Company holding the remaining shares 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 Representatives. 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.
Upon the expiration of the 13-month Lock-Up Agreements, shares subject to
vested options, warrants (other than the Warrants offered hereby and the
Representatives' Warrant) and conversion rights will also become available for
sale, subject 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 one year 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 Representatives. 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.
52
<PAGE>
Prior to this offering, there has been no public market for the
securities of the Company and no prediction can be made as to the effect, if
any, that market sales or the availability of securities for sale will have on
the market prices of the Company's securities. Nevertheless, sales of
substantial amounts of the Company's securities in the public market may have an
adverse impact on the market price of such securities and could impair the
Company's ability to raise capital through future sales of its equity
securities.
53
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Neidiger/Tucker/Bruner,
Inc. and Westport Resources Investment Services, Inc. (the "Representatives"),
have jointly and severally agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company the respective number of
Units set forth opposite their names below at the initial public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Neidiger/Tucker/Bruner, Inc............................................................
Westport Resources Investment Services, Inc............................................
---------------
Total............................................................................ 500,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Units offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to purchase 500,000 Units, if
any are purchased.
The Underwriters propose to offer part of the Units offered hereby
directly to the public at the offering price and part of such Units to certain
dealers at a price that represents a concession within the discretion of the
Representatives. The Underwriters do not intend to confirm sales to accounts
over which they exercise discretionary authority. The Underwriters may allow,
and such dealers may re-allow, a concession within the discretion of the
Representatives. After the initial offering, the offering price and the selling
terms may be changed by the Underwriters.
The Units offered by the Underwriters are subject to prior sale. The
Underwriters reserve the right to withdraw, cancel or modify such offer (which
may be done only by filing an amendment to the Registration Statement) and to
reject orders in whole or in part for the purchase of the Units and to cancel
any sale even after the purchase price has been paid if such sale, in the
opinion of the Underwriters, would violate federal or state securities laws or a
rule or policy of the NASD.
The Company and the Underwriters have agreed to indemnify each other and
related persons against certain liabilities, including liabilities under the
Securities Act, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon the relative benefits received
from the offering and the relative fault resulting in such damages. Such
relative benefits and relative fault would be determined in legal actions among
the parties.
Except for the outstanding securities described herein and except upon
the exercise of the options and warrants described herein, the Company has
agreed not to sell any additional securities for 12 months after the date of
this Prospectus without the Representatives' prior written consent. Each of the
Company's directors and officers and certain other employees and security
holders have entered into agreements which provide that such persons, who own an
aggregate of shares of Common Stock, may not publicly offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock during a
13-month period after the date of this Prospectus without the Representatives'
prior written consent. See "Shares Eligible for Future Sale."
The Company has granted to the Underwriters an option exercisable for 45
days from the date of this Prospectus to purchase up to 75,000 additional Units
from the Company at the same price per Unit that the Underwriters pay for the
500,000 Units. The Underwriters may exercise their option only for the purpose
of covering over-allotments made in the sale of the 500,000 Units offered
hereby. In addition, the Company has agreed to pay to the Representatives at the
closing of the offering, a non-accountable expense allowance of 3% of the
aggregate initial public offering price of the Units to cover expenses
54
<PAGE>
incurred by the Representatives in connection with the offering, reduced by
amounts previously advanced by the Company.
The Company has agreed to issue for a nominal consideration, warrants to
the Representatives (the "Representatives' Warrants") and their designees to
purchase 50,000 Units. The Warrants are exercisable at any time during the
four-year period commencing 12 months after the date of this Prospectus at
$12.30 per Unit. The Representatives' Warrants are not transferable except (i)
to an Underwriter or a partner or officer of an Underwriter or (ii) by will or
operation of law. Any profit realized on the sale of the Representatives'
Warrants or the underlying securities may be deemed additional underwriting
compensation. Commencing one year and ending five years from the date hereof,
holders of the Representatives' Warrants and the securities underlying the
Representatives' Warrants will have a one-time right to demand registration of
the securities underlying the Representatives' Warrants at the Company's expense
in order to effect a public offering thereof, and "piggyback" rights to require
registration of the securities underlying the Representatives' Warrants in
certain registration statements filed by the Company with the Securities and
Exchange Commission. Such registration rights may be transferred to any
subsequent holder of the Representatives' Warrants and the underlying
securities. The Representatives' Warrants and the underlying securities have
been registered under the Securities Act by means of the Registration Statement
of which this Prospectus is a part.
Prior to this offering there has been no public market for the Company's
securities. The initial public offering price of the Units has been determined
by negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price of the Units, in
addition to prevailing market conditions, has been the Company's historical
performance, estimates of the business potential and earnings potential of the
Company, an assessment of the Company's management and the consideration of such
factors in relation to market valuation of companies in related businesses. The
offering price of the Units bears no relationship to the assets, net worth, book
value, sales price of securities issued to shareholders of the Company, or any
other criteria of value.
The Company has agreed that for a period of three years after the date
of this Prospectus, Neidiger/Tucker/Bruner, Inc. shall have the right to
designate one person as an advisor to the Company's Board of Directors. That
person will be reimbursed for his or her expenses in attending meetings of the
Board but will have no power to vote as a director. The person will be
indemnified by the Company against any claim arising out of his or her
attendance at meetings of the Board or advice to the Board to the maximum extent
permitted by law. During the three-year period, the Company has agreed with the
Representatives to hold meetings of its Board at least once each calendar
quarter. In the event the Company maintains a liability insurance policy with
coverage of acts of its officers and directors, the Company has agreed that, if
possible, it will include the advisor designee as an insured under the policy.
Any advisor designated by the Representatives shall be acceptable to the
Company, which acceptance shall not be unreasonably withheld.
Neidiger/Tucker/Bruner, Inc. 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 $70,000, payable at the closing of this offering.
The consulting arrangement will not require the Representatives to devote a
specific amount of time to the performance of its duties thereunder.
The Company has agreed that, upon exercise of the Redeemable Warrants at
any time after the first anniversary date of this Prospectus, the
Representatives shall be entitled to receive 5% of the exercise price of such
Warrants; provided, however, that such payment shall not be made to the
Representatives 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 Representatives.
55
<PAGE>
The foregoing is a summary of the principal terms of the Underwriting
Agreement and the other agreements referenced and does not purport to be
complete. Reference is made to copies of each such agreement which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
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 John G.
Herbert, P.C., Denver, Colorado.
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.
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.
56
<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>
57
<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>
58
<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
After the amendment to the Certificate of Incorporation of Apollo
BioPharmaceutics, Inc. to effect the reverse stock split discussed in Note A to
the financial statements, we expect to be in a position to render the following
audit report.
/s/ Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
April 28, 1997
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
As to Note H,
March 26, 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) (Notes D and H):
Preferred stock--$.01 par value; 1,000,000 shares authorized, none issued
Common stock--$.02 par value; 20,000,000 shares authorized, 2,278,017 and
2,719,985 shares issued at December 31, 1995 and 1996, respectively....... 45,560 54,400
Additional paid-in capital.................................................. 1,158,960 2,720,036
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....................................................... $ (.17) $ (.15)
----------- -----------
----------- -----------
Weighted average number of shares outstanding............................ 2,441,692 2,700,358
</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 $.10 per share from inception
through December 31, 1992............................. 396,765 $ 7,935 $ 33,065 $ 41,000
Issuance of common stock for services at $.10 per share
from inception through December 31, 1992.............. 38,709 774 3,226 4,000
Net loss for the year ended December 31, 1992........... $ (77,972) (77,972)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1992.............................. 435,474 8,709 36,291 (77,972) (32,972)
Additional shares sold at $.10 per share................ 774,178 15,484 64,516 80,000
Shares issued for services at $.10
per share............................................. 104,514 2,090 8,710 10,800
Sale of common stock in connection with private
placement of stock at $1.03 per share................. 619,342 12,387 627,613 640,000
Costs related to private placement...................... (36,530) (36,530)
Shares issued for services at $1.03 per share........... 5,806 116 5,884 6,000
Net loss for the year ended
December 31, 1993..................................... (354,333) (354,333)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1993.............................. 1,939,314 38,786 706,484 (432,305) 312,965
Repurchase of common stock by the Company and
cancellation of shares................................ (9,677) (194) (806) (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.............................. 1,929,637 38,592 712,428 (955,312) (204,292)
Sale of common stock at $1.29 per share................. 348,380 6,968 443,032 450,000
Costs of raising capital................................ (12,250) (12,250)
Purchase (for $8,000) and resale
(for $20,000) of 38,709 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.............................. 2,278,017 45,560 1,158,960 (1,372,461) (167,941)
Shares issued for services at $1.55 per share........... 16,170 323 24,743 25,066
Conversion of debt into common stock.................... 135,481 2,710 203,190 205,900
Sale of common stock in connection with private
placement of stock at $3.61 per share................. 152,068 3,042 546,958 550,000
Sale of common stock in connection with an agreement at
$3.61 per share (Note E).............................. 138,249 2,765 497,235 500,000
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.............................. 2,719,985 $ 54,400 $ 2,720,036 $ (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 1996 the Board of Directors 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 and 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.
In April 1997, the Company's Board of Directors proposed a further
amendment of the Company's Certificate of Incorporation whereby an additional
reverse stock split of 1 for 1.55 shares of common stock and all securities of
the Company convertible into common stock would be made.
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.
F-7
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[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 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 Note C 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 $1.55 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 135,481 shares of common stock. In conjunction with
these notes, the Company issued warrants for the purchase of 135,481 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
F-8
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE C)--NOTES PAYABLE: (CONTINUED)
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].
(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 2,719,985
shares issued since inception, 2,554,784 were sold for cash and the remaining
165,201 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 387,096 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 58,064 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............................................................. 38,710 $1.03
-----------
Balance--December 31, 1993.......................................... 38,710 $1.03
Granted............................................................. 96,774 $1.35
-----------
Balance--December 31, 1994.......................................... 135,484 $1.26
Cancelled........................................................... (58,065) $1.13
Granted............................................................. 116,125 $1.29
-----------
Balance--December 31, 1995.......................................... 193,544 $1.32
Granted............................................................. 46,450 $4.14
-----------
Balance--December 31, 1996.......................................... 239,994 $1.86
-----------
-----------
</TABLE>
At December 31, 1996, options to purchase 189,677 shares were
exercisable at an average exercise price of $1.50 per share at prices ranging
from $1.03 to $4.14 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
F-9
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE D)--COMMON STOCK, OPTIONS AND WARRANTS: (CONTINUED)
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 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 $ (.17) $ (.15)
Pro forma $ (.18) $ (.17)
</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: no dividend yield; expected
volatility of 30%; a risk free interest rate of 7.5%; and an expected holding
period of five years.
The weighted-average grant date fair value of options granted was $1.69
per share and $.64 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 135,481 shares of the Company's common stock. The
warrants are exercisable until September 17, 1999 with respect to 87,096
warrants and until April 30, 2000 with respect to 48,387 warrants, all at the
lower of $1.55 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 96,774 shares of the Company's
common stock. The warrants are exercisable until November, 2003 at an exercise
price of $3.61 per share with respect to 67,741 shares of Common Stock and an
exercise price of $4.52 per share with respect to 29,032 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.
F-10
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--COMMITMENTS: (CONTINUED)
[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 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 138,249 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 96,774 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) $4.52 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) $5.42 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.
F-11
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--COMMITMENTS: (CONTINUED)
The agreement will automatically extend for additional two-year periods unless
terminated by either party to the agreement.
(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.
(NOTE H)--SUBSEQUENT EVENT:
In connection with the Company's proposed initial public offering, on
March 26, 1997, the Company agreed to purchase 27,649 shares of its common stock
for an aggregate purchase price of $100,000, less the return of a placement fee
of $5,000 previously paid in connection with the sale of such shares.
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........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 24
Management................................................................ 40
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 46
Description of Securities................................................. 48
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 54
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 56
Glossary of Technical Terms............................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL MAY , 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.
500,000 UNITS
[LOGO]
---------------------
PROSPECTUS
APRIL , 1997
---------------------
NEIDIGER/TUCKER/BRUNER, INC.
WESTPORT RESOURCES INVESTMENT
SERVICES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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................................... $ 147,250
Accounting fees and expenses...................................... $ 40,000
Legal fees and expenses........................................... $ 200,000
Transfer agent and registrar fees................................. $ 10,000
Representatives' expenses......................................... $ 153,750
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 396,765 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 87,096 shares of the Company's Common Stock
exercisable at $1.55 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 48,387 shares of the Company's Common Stock exercisable
at $1.55 per share. In September 1996, the 1994 Notes were converted into 87,096
shares of Common Stock and, in December 1996, the 1995 Notes were converted into
48,387 shares of Common Stock.
In May 1995, the Company sold an aggregate of 348,380 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 152,068 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 138,249 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 67,741 shares of Common Stock at an exercise price of $3.62 per share
and (ii) warrants to purchase 29,032 shares of Common Stock at an exercise price
of $4.52 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) $4.52 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) $5.42 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 336,403 shares of the Company's Common Stock (or approximately 8.6% 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 the
Company's Registration Statement on Form SB-2 (Reg. No. 333-18769) (the "1996 SB-2") and incorporated
herein by reference.
3.2 By-laws of the Company. Filed on December 24, 1996 as Exhibit 3.2 to the 1996 SB-2 and incorporated
herein by reference.
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 the 1996 SB-2 and incorporated
herein by reference.
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 the 1996 SB-2 and incorporated
herein by reference.
4.1 Specimen Common Stock Certificate. Filed on February 6, 1997 as Exhibit 4.1 to the 1996 SB-2 and
incorporated herein by reference.
4.2 Specimen Common Stock Purchase Warrant. Filed herewith.
4.3 Specimen Unit Certificate. Filed herewith.
5 Opinion of Palmer & Dodge LLP as to the legality of the securities being registered. Filed herewith.
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed on December 24, 1996
as Exhibit 10.1 to the 1996 SB-2 and incorporated herein by reference.
10.2* 1996 Director Stock Option Plan. Filed on December 24, 1996 as Exhibit 10.2 to the 1996 SB-2 and
incorporated herein by reference.
10.3 Form of Indemnification Agreement between the Company and its directors. Filed on December 24, 1996
as Exhibit 10.3 to the 1996 SB-2 and incorporated herein by reference. 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 on March 17, 1997 as Exhibit 10.4 to the 1996 SB-2 and incorporated
herein by reference.
10.5 License, Research and Collaboration Agreement, dated as of December 13, 1996, between the Company and
Endocon, Inc. Filed on March 17, 1997 as Exhibit 10.5 to the 1996 SB-2 and incorporated herein by
reference.
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 the 1996 SB-2 and incorporated herein by
reference.
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena
Neurosciences, Inc. Filed on March 17, 1997 as Exhibit 10.7 to the 1996 SB-2 and incorporated herein
by reference.
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and
the University of Kentucky Research Foundation. Filed on March 17, 1997 as Exhibit 10.8 to the 1996
SB-2 and incorporated herein by reference.
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 on March 17, 1997
as Exhibit 10.9 to the 1996 SB-2 and incorporated herein by reference.
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the
Company and the University of Florida. Filed on March 17, 1997 as Exhibit 10.10 to the 1996 SB-2 and
incorporated herein by reference.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida
Research Foundation, Inc. Filed on March 17, 1997 as Exhibit 10.11 to the 1996 SB-2 and incorporated
herein by reference.
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 the 1996 SB-2 and incorporated herein by
reference.
10.13* Letter Agreement dated as of November 10, 1996 between the Company and John J. Curry. Filed on March
17, 1997 as Exhibit 10.13 to the 1996 SB-2 and incorporated herein by reference.
10.14* Letter Agreement dated as of May 15, 1996 between the Company and Robert J. Leonard. Filed on March
17, 1997 as Exhibit 10.14 to the 1996 SB-2 and incorporated herein by reference.
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 among the Company, Neidiger/Tucker/Bruner, Inc. and
Westport Resources Investment Services, Inc. Filed herewith.
10.17 Form of Financial Advisory Agreement between the Company and Neidiger/Tucker/Bruner, Inc. Filed
herewith.
11 Statement re: Computation of loss per share. Filed on March 17, 1997 as Exhibit 11 to the 1996 SB-2
and incorporated herein by reference.
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.
27 Financial Data Schedule. Filed on February 24, 1997 as Exhibit 27 to the 1996 SB-2 and incorporated
herein by reference.
</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.
II-5
<PAGE>
(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-6
<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
April 28, 1997.
APOLLO BIOPHARMACEUTICS, INC.
BY: /S/ KATHERINE GORDON
-----------------------------------------
Katherine Gordon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Apollo BioPharmaceutics,
Inc., hereby severally constitute and appoint Katherine Gordon, John J. Curry
and Michael Lytton, and each of them singly, our true and lawful
attorneys-in-fact, with full power to them in any and all capacities, to sign
any amendments to this Registration Statement, and any related Rule 462(b)
registration statement or amendment thereto, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed 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 April 28, 1997
Katherine Gordon Officer)
Vice President--Finance,
Chief Financial Officer
/s/ JOHN J. CURRY* and Treasurer (Principal
- ------------------------------ Financial Officer and April 28, 1997
John J. Curry Principal Accounting
Officer)
/s/ ROBERT J. LEONARD* Vice President--Business
- ------------------------------ Development, Director April 28, 1997
Robert J. Leonard
/s/ THEODORE GORDON* Director
- ------------------------------ April 28, 1997
Theodore Gordon
/s/ DONALD WEISE* Director
- ------------------------------ April 28, 1997
Donald Weise
/s/ GEORGE MASTERS* Director
- ------------------------------ April 28, 1997
George Masters
/s/ MICHAEL CALLAGHAN Director
- ------------------------------ April 28, 1997
Michael Callaghan
<TABLE>
<S> <C>
* /s/ KATHERINE GORDON
----------------------------------------
Katherine Gordon
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<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 the Company's Registration Statement on Form SB-2 (Reg. No. 333-18769) (the "1996 SB-2")
and incorporated herein by reference.
3.2 By-laws of the Company. Filed on December 24, 1996 as Exhibit 3.2 to the 1996 SB-2 and
incorporated herein by reference.
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 the 1996 SB-2 and
incorporated herein by reference.
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 the 1996
SB-2 and incorporated herein by reference.
4.1 Specimen Common Stock Certificate. Filed on February 6, 1997 as Exhibit 4.1 to the 1996 SB-2
and incorporated herein by reference.
4.2 Specimen Common Stock Purchase Warrant. Filed herewith.
4.3 Specimen Unit Certificate. Filed herewith.
5 Opinion of Palmer & Dodge LLP as to the legality of the securities being registered. Filed
herewith.
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed on December
24, 1996 as Exhibit 10.1 to the 1996 SB-2 and incorporated herein by reference.
10.2* 1996 Director Stock Option Plan. Filed on December 24, 1996 as Exhibit 10.2 to the 1996 SB-2
and incorporated herein by reference.
10.3 Form of Indemnification Agreement between the Company and its directors. Filed on December
24, 1996 as Exhibit 10.3 to the 1996 SB-2 and incorporated herein by reference. 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 on March 17, 1997 as Exhibit 10.4 to the 1996 SB-2 and
incorporated herein by reference.
10.5 License, Research and Collaboration Agreement, dated as of December 13, 1996, between the
Company and Endocon, Inc. Filed on March 17, 1997 as Exhibit 10.5 to the 1996 SB-2 and
incorporated herein by reference.
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 the 1996 SB-2 and incorporated
herein by reference.
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and
Athena Neurosciences, Inc. Filed on March 17, 1997 as Exhibit 10.7 to the 1996 SB-2 and
incorporated herein by reference.
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company
and the University of Kentucky Research Foundation. Filed on March 17, 1997 as Exhibit 10.8
to the 1996 SB-2 and incorporated herein by reference.
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
on March 17, 1997 as Exhibit 10.9 to the 1996 SB-2 and incorporated herein by reference.
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between
the Company and the University of Florida. Filed on March 17, 1997 as Exhibit 10.10 to the
1996 SB-2 and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S> <C>
10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of
Florida Research Foundation, Inc. Filed on March 17, 1997 as Exhibit 10.11 to the 1996 SB-2
and incorporated herein by reference.
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 the 1996 SB-2 and incorporated herein
by reference.
10.13* Letter Agreement dated as of November 10, 1996 between the Company and John J. Curry. Filed on
March 17, 1997 as Exhibit 10.13 to the 1996 SB-2 and incorporated herein by reference.
10.14* Letter Agreement dated as of May 15, 1996 between the Company and Robert J. Leonard. Filed on
March 17, 1997 as Exhibit 10.14 to the 1996 SB-2 and incorporated herein by reference.
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 among the Company, Neidiger/Tucker/ Bruner, Inc.
and Westport Resources Investment Services, Inc. Filed herewith.
10.17 Form of Financial Advisory Agreement between the Company and Neidiger/Tucker/ Bruner, Inc.
Filed herewith.
11 Statement re: Computation of loss per share. Filed on March 17, 1997 as Exhibit 11 to the
1996 SB-2 and incorporated herein by reference.
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.
27 Financial Data Schedule. Filed on February 24, 1997 as Exhibit 27 to the 1996 SB-2 and
incorporated herein by reference.
</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>
FORM OF
APOLLO BIOPHARMACEUTICS, INC.
500,000 Units
UNDERWRITING AGREEMENT
NEIDIGER, TUCKER, BRUNER, INC.
300 Plaza Level
1675 Larimer Street
Denver, Colorado 80202
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
315 Post Road West
Westport, Connecticut 06880-4745
(as Representatives of the Several
Underwriters named in Schedule I hereto)
1997
-----------------,
Gentlemen:
Apollo Biopharmaceutics, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to the several
Underwriters named in Schedule I hereto (collectively the
Underwriters"), on whose behalf Neidiger, Tucker, Bruner,
Inc. ("NTB") and Westport Resources Investment Services,
Inc. ("WRIS") are acting as representatives (the
Representatives"), 500,000 Units (the "Firm Units"), each
Unit consisting of two shares of the Common Stock, par value
$.02 per share, of the Company ("Common Stock"), and one
redeemable warrant ("Redeemable Warrant"), entitling the
holder thereof to purchase one share of Common Stock.
Pursuant to, and subject to certain conditions set forth in,
the Warrant Agreement between the Company and American Stock
Transfer and Trust Company (the "Warrant Agent"), each
Redeemable Warrant is exercisable for a period of five (5)
years after the effective date of the Registration Statement
(as defined herein) at an initial exercise price (subject to
adjustment as provided in the Warrant Agreement) of
$ ( %) of the initial public offering price
-------------- ---
of the Firm Units), and is redeemable at the Company's
election for a period of four (4) years commencing 12 months
after the effective date of the Registration Statement. The
Underwriters will have the option to purchase from the
Company up to 75,000 additional Units (the "Option Units")
solely to cover over-allotments in the sale of the Firm
<PAGE>
Units. In addition, the Company proposes to sell to you
individually, and not in your capacity as Representatives,
at the Closing Date (as hereinafter defined) 5-year warrants
(the Representatives' Warrants") to purchase, for 120% of
the public offering price of the Firm Units, an aggregate of
50,000 Units which sale of the Representatives' Warrants
will be consummated on the Closing Date in accordance with
the terms and conditions of the Representatives' Warrant
Agreement (the "Representatives' Warrant Agreement") in the
form filed as an exhibit to the Registration Statement. The
Warrant component of the Units underlying the
Representatives' Warrants are to be substantially identical
to the Redeemable Warrants, except that, so long as the
Representatives' Warrants are held by the Representatives or
any affiliate thereof, the Representatives' Warrants shall
not be redeemable by the Company. The Representatives'
Warrants, and the Units issuable upon exercise of the
Representatives' Warrants and the components of such Units
are hereinafter referred to as the "Representatives'
Securities."
The Firm Units, and any Option Units purchased pursuant
to this Underwriting Agreement, together with the underlying
shares of Common Stock and Redeemable Warrants, are
collectively referred to herein as the "Securities." The
Securities and the Representatives' Securities are more
fully described in the Registration Statement and Prospectus
referred to below. The term "Underwriters" refers to any
individual member of the underwriting syndicate and includes
any parties substituted for an Underwriter under Section
---
hereof.
The Representatives warrant to the Company that: (a)
the Representatives are authorized to enter into this
Agreement on behalf of the several Underwriters; and (b) the
several Underwriters are willing, severally and not jointly,
to purchase the number of Firm Units set forth opposite
their respective names in Schedule I.
In consideration of the mutual agreements contained
herein and the interests of the parties in the transactions
contemplated hereby, the parties hereto confirm their
agreement as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with,
each Underwriter 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 on Form SB-2 (File No. )
-----------
for the registration of the Securities and the
Representatives' Securities in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations of the Commission. No
amendment thereto has been filed and none will be filed with
the Commission to which Representatives shall object after
having been furnished with a copy thereof. Except as the
context may otherwise require, such registration statement,
including the prospectus, Part II, and all schedules and
exhibits thereto (including all other documents and
information filed or incorporated by reference as a part
thereof), as amended at the time when it becomes effective,
including any information deemed to be a part thereof
pursuant to paragraph (b) of Rule 430(A) under the Act, is
herein referred to as the
2
<PAGE>
"Registration Statement" and the
prospectus constituting Part I of the Registration Statement
when it becomes effective, with any changes made to such
prospectus after the effective date of the Registration
Statement pursuant to Rule 424(b) under the Act is herein
referred to as the "Prospectus." Any prospectus included in
the Registration Statement and any amendments thereto prior
to the effective date of the Registration Statement is
referred to herein as the "Preliminary Prospectus." For
purposes of this Agreement, "Rules and Regulations" means
the rules and regulations adopted by the Commission under
either the Act or the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), as the context requires.
For 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) No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission
or any state of the United States or other regulatory body
and no proceedings therefore have been instituted or are
pending or, to the best knowledge of the Company after due
inquiry, threatened. Each Preliminary Prospectus at the
time of filing thereof conformed in all material respects
with the requirements of the Act and the Rules and
Regulations and did not contain any untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this
representation and warranty does not apply to statements in
or omission from, any Preliminary Prospectus in reliance
upon, and in conformity with, written information furnished
to the Company by you or by any Underwriter directly or
through you, specifically for use in the preparation
thereof.
(c) When the Registration Statement becomes
effective, and at all times subsequent thereto up to an
including the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus as may
be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement, any
post effective amendment thereto and the Prospectus, each as
amended or supplemented, shall comply in all material
respects with the requirements of the Act and the Rules and
Regulations and will not 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 the foregoing
shall not apply to statements in, or omissions from, any
such document in reliance upon, and in conformity with,
written information furnished to the Company by you or by
any Underwriter directly or through you, specifically for
use in the preparation thereof.
(d) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, with full power and authority (corporate
and other) to own or lease its properties and conduct its
business as described in the Prospectus, and is duly
qualified to do business and is in good standing in each
jurisdiction in which the character of the business
conducted by it or the location of the properties owned or
leased by it makes such qualification necessary, except
where the failure to do so would not have a
3
<PAGE>
material adverse effect. The Company holds all material licenses,
certificates, permits, consents, orders and approvals or
other authorizations necessary to lease or own, as the case
may be, and to operate its property and conduct its business
as described in the Prospectus. None of the activities or
businesses of the Company is in violation of any law, rule,
regulation or order of the United States, any state, county
or locality, or of any agency or body of the United State or
of any state, county or locality, other than violations
which would not have a material adverse effect upon the
Company.
(e) The capitalization of the Company shall be as
set forth in the Prospectus under the caption
"Capitalization" and the Common Stock, Redeemable Warrants
and the Representatives' Securities conform or will conform
to the description thereof contained in the caption
"Description of Securities" in the Prospectus. The Company
will have the adjusted capitalization as set forth therein
in the Prospectus on the Closing Date and each Option
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
Representatives' Warrant Agreement or 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 and the
Representatives' 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
Representatives' 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 and the
Representatives' Securities have been duly and validly
taken; and the certificates evidencing the Securities will
be in due and proper form.
(f) To the best of the Company's knowledge and
information, each firm of accountants which certify the
financial statements included in the Registration Statement
is an independent certified public accountant as required by
the Act and Rules and Regulations. The financial statements
(including the related notes and schedules) included in the
Registration Statement, each Preliminary Prospectus and the
Prospectus present fairly the financial condition, the
results of operations and cash flows of the Company at the
dates and for the periods indicated and have been prepared
in accordance with generally accepted accounting principles
and accounting requirements of the Act and the Rules and
Regulations applied on a consistent basis throughout the
periods indicated. Since the date of the financial
statements included in the Registration Statement and the
Prospectus, the Company has not experienced any adverse
change
4
<PAGE>
or any development suggesting the likelihood of a
future material adverse change in or affecting the condition
of the Company, financial or otherwise. The financial
information set forth in the Prospectus under the headings
"Selected Financial Data," "Capitalization," and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations," present fairly the information
set forth therein and has been compiled on a basis
consistent with that of the audited financial statements
included in the Registration Statement, any Preliminary
Prospectus and Prospectus.
(g) The Company has filed with the appropriate
federal, state and local governmental agencies, and all
foreign countries and political subdivisions thereof, all
tax returns, including franchise tax returns, which are
required to be filed or has duly obtained extensions of time
for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent
that the same have become due. The provisions for income
taxes payable, if any, shown on the financial statements
filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic
taxes, whether or not disputed, and for all periods to and
including the dates of such financial statements. The
Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for
assessment or collection of any income taxes and is not a
party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of
taxes; and no claims for assessment or collection of taxes
have been asserted against the Company.
(h) The Company's business and properties are
adequately insured by insurors of recognized financial
responsibility against loss or damage by fire and other
appropriate risks (including computer failure); the
Company's performance is adequately guaranteed by bonding
firms of recognized financial responsibility in accordance
with all requirements under its agreements and all
applicable regulations and rules applicable to its
agreements; and the Company maintains such other insurance
and performance guaranty bonds as are prudent or customarily
maintained by companies of comparable size and in the same
or similar business and in the same or similar localities;
the Company has not been refused any insurance or bonding
coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its
existing insurance coverage and performance guaranty bonds
as and when such coverage expires or to obtain similar
coverage from similar insurors and bonding firms as may be
necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or
otherwise), business prospects, net worth or results of
operations of the Company, except as described in or
contemplated by the Prospectus.
(i) Except as disclosed in the Prospectus, there
is no litigation or governmental proceeding to which the
Company is a party or to which any property of the Company
is subject or which is pending in which the Company has been
served or, to the best knowledge of the Company, is
otherwise pending or threatened against the Company which,
if adversely determined, will result in any material adverse
change in the financial condition, results of operations,
business or prospects of the Company or which is required to
be disclosed in the Prospectus which has not been so
disclosed. To the best knowledge of the Company, no
5
<PAGE>
labor disturbance by the employees of the Company exists or is
imminent and which, if it now exists or comes to exist, is
expected materially to affect adversely the financial
condition, results of operations, business or prospects of
the Company or which is required to be disclosed in the
Prospectus.
(j) Each of this Agreement, the Warrant
Agreement, the Representatives' Warrant Agreement and the
Financial Consulting Agreement (as hereinafter
provided)constitutes the valid and binding agreement of the
Company enforceable against the Company in accordance with
its terms, except insofar as rights to indemnity and/or
contribution may be limited by federal or state securities
laws or the public policy underlying such laws and except as
enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors'
rights generally, and be subject to general principles of
equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Each of
the Redeemable Warrants and the Representatives' Securities
have been duly and validly authorized by the Company and
upon their delivery in accordance herewith will be duly
issued and will be the legal, valid and binding obligations
of the Company. The shares of Common Stock underlying the
Redeemable Warrants and the Representatives' Securities have
been duly authorized and reserved for issuance upon the
exercise of such Warrants and when issued upon payment of
the exercise price therefor will be validly issued, fully
paid and nonassessable shares of Common Stock.
(k) The Company is not in violation of or in
default under (i) any term or provision of its Certificate
of Incorporation or Bylaws, as amended; (ii) any material
term or provision or any material financial covenants of any
indenture, mortgage, contract, commitment or other agreement
or instrument to which it is a party or by which it or any
of its property or business is or may be bound or affected;
or (iii) to its knowledge, any existing applicable law,
rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or
businesses the violation of which would have a material
adverse effect on the Company. The Company owns, possesses
or has obtained all governmental and other (including those
obtainable from third parties) licenses, permits,
certifications, registrations, approvals or consents and
other authorizations necessary to own or lease, as the case
may be, and to operate its properties, whether tangible or
intangible, and to conduct any of the business operations of
the Company as presently conducted (except where the
Company's failure to obtain such license, permit,
certification, registration, approval, consent or other
authorization would not materially adversely affect the
Company) and all such licenses, permits, certifications,
registrations, approvals, consents and other authorizations
are outstanding and in good standing, and there are no
proceedings pending or, to the best of the knowledge of the
Company, threatened, seeking to cancel, terminate or limit
such licenses, permits, certifications, registrations,
approvals or consents or other authorizations.
(l) The execution and delivery hereof or of the
Warrant Agreement, the Representatives' Warrant Agreement or
the Financial Consulting Agreement or consummation of the
transactions contemplated hereby or thereby will not result
in a violation of, or constitute
6
<PAGE>
a default that would be material to the business of the
Company under, the Company's Certificate of Incorporation
or Bylaws, as amended, or other governing documents
of the Company, or any material agreement, indenture
or other instrument, to which the Company is a
party or by which it is bound, or to which any
of its properties is subject, nor will the Company's
performance of its obligations hereunder, under the Warrant
Agreement or the Representatives' Warrant Agreement violate
any law, rule, administrative regulation or decree of any
court or any governmental agency or body having jurisdiction
over the Company or any of its properties, or result in the
creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of the Company.
Except for an order of the Commission declaring the
Registration Statement effective, and except for permits and
similar authorizations required under the securities or
"blue sky" laws of certain states of the United States and
for such permits and authorizations which have been
obtained, no consent approval, authorization or order of any
court, governmental agency or body or financial institution
is required in connection with the consummation of the
transactions contemplated by this Agreement, the Warrant
Agreement or the Representatives' Warrant Agreement.
(m) The descriptions in the Registration
Statement and the Prospectus of material contracts and other
documents are accurate in all material respects and present
fairly the information required to be disclosed, and there
are no contracts or other documents required to be described
in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement under the Act or
the Rules and Regulations which have not been so described
or filed as required. Each material contract or other
instrument (however characterized or described) to which the
Company is a party or by which its property or business is
or may be bound or affected and to which reference is made
in the Prospectus has been duly and validly executed by the
Company, is in full force and effect in all material
respects and is enforceable against the parties thereto in
accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts
in granting equitable remedies, and none of such contracts
or instruments has been assigned by the Company and neither
the Company nor, to the best knowledge of the Company, any
other party is in material default thereunder, which default
would have a material adverse effect on the business,
prospects, financial condition or results of operations of
the Company and, to the best knowledge of the Company, no
event has occurred which, with the lapse of time or the
giving of notice, or both, would constitute a default
thereunder, which would have a material adverse effect on
the business, prospects, financial condition or results of
operations of the Company. None of the material provisions
of such contracts or instruments violates any existing
applicable law, rule, regulation, judgement, order or decree
of any governmental agency or court having jurisdiction over
the Company or any of its assets or business including,
without limitation, those relating to health care or
employee benefits, which violation would have a material
adverse effect on the business, prospects, financial
condition or results of operations of the Company.
(n) Subsequent to the respective dates as of
which information is set forth in the Registration Statement
and Prospectus, and may be described in or contemplated by
the Prospectus, there has not been any material adverse
change in, or any adverse development that
7
<PAGE>
materially affects, the business, properties, financial condition,
results of operations or prospects of the Company from the
date as of which information is given in the Prospectus; and
except as described in the Prospectus, the Company has not,
directly or indirectly, incurred any material liabilities or
obligations, direct or contingent, not in the ordinary
course of business, other than obligations related to the
offering of the Securities, or entered into any transaction
not in the ordinary course of business which is material to
the business of the Company and required to be disclosed in
the Prospectus. Except as described in or contemplated by
the Prospectus, there has not been any material change in
the capital stock of, or any incurrence of long-term debt
by, the Company, or any issuance or grant of options,
warrants or rights to purchase the capital stock of the
Company, or any declaration or payment of any dividend on
the capital stock of the Company from the date as of which
information will be given in the Prospectus.
(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 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 resulting in a violation
of Rule 10b-6 or Rule 10b-7 under the Exchange Act, or
designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Securities.
8
<PAGE>
(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, Liens or claim of
others, including without limitation former employers of its
employees; provided, however, that the possibility exists
that other persons or entities, completely independent 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 described or referred to 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) Except as disclosed in the Registration
Statement and the Prospectus, the Company has not issued,
sold or offered for sale within the last three years any
shares of its Common Stock, any right to acquire any shares
of Common Stock or any securities or instrument exercisable
for or convertible into any shares of Common Stock.
9
<PAGE>
(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 or the Representatives' 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") or for which the Company or any
Underwriter may be responsible.
(x) The Units, the Common Stock and the
Redeemable Warrants have been duly registered under Section
12(g) of the Exchange Act. The Units, the Common Stock and
the Redeemable Warrants have been approved for inclusion in
the Automated Quotation System of the National Association
of Securities Dealers, Inc. ("NASDAQ") SmallCap Market.
(y) Neither the Company nor to best of the
Company's knowledge any officer, director or employee of or
agent acting on behalf of the Company has at any time (i)
made any contributions to any candidate for political office
in violation of law, or failed to disclose fully any
contributions to any candidate for political office in
accordance with any applicable statute, rule, regulation or
ordinance requiring such disclosure, (ii) made any payment
to any governmental officer or official, or other person
charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law, (iii)
made any payment outside the ordinary course of business to
any purchasing or selling agent or person charged with
similar duties of any entity to which the Company sells or
from which the Company buys products for the purpose of
influencing such agent or person to buy products from or
sell products to the Company, or (iv) engaged in any
transaction on behalf of the Company, maintained any bank
account for the Company, or used any corporate funds of the
Company, except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained
books and records of the Company.
(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 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 shall be deemed a
10
<PAGE>
representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(bb) The minute books of the Company have been
made available to the Representatives and contain 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 (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. Purchase of the Units by the Several Underwriters;
Representatives' Warrants.
(a) Firm Units. On the basis of the
representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions set
forth, the Company agrees to sell to the Underwriters the
Firm Units, and subject to the terms and conditions herein,
the Underwriters agree, severally and not jointly, to
purchase from the Company, at the price per Unit of
$ , at the place and time hereinafter specified,
-----------
the number of Firm Units set forth opposite their respective
names in Schedule I hereto, subject to adjustment in
accordance with Section 12 hereof. The Underwriters agree
to release the Firm Units for resale to the public at the
price of $ per Firm Unit promptly, in the judgement
--------
of the Representatives, after the effective date of the
Registration Statement and on the terms set forth in the
Prospectus.
(b) Option Units. On the basis of the
representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein
set forth, for the sole purpose of covering any
over-allotments in connection with the distribution and sale
of the Firm Units as contemplated by the Prospectus, the
Company hereby grants the Underwriters an option to
purchase, severally and not jointly, up to 75,000 Option
Units. The purchase price per Unit to be paid for the
Option Units shall be the same price per Unit as for the
Option Units. The option granted hereby may be exercised as
to all or any part of the Option Units at any time or times
not more then 45 days subsequent to the effective date of
the Registration Statement. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No
11
<PAGE>
Option Units shall be sold and delivered unless the Firm
Units previously have been, or simultaneously are, sold and
delivered.
(c) Representatives' Warrants. On the basis of
the Representatives' warranties, covenants and agreements
herein contained and subject to the terms and conditions set
forth herein and in the Representatives' Warrant Agreement
executed simultaneously herewith, the Company shall sell to
you individually, and/or your designees, and not as the
Representatives of the Underwriters, at the Closing Date,
for $100, Representatives' Warrants to purchase up to an
aggregate of 50,000 Units.
3. Delivery of and Payment for Units. Delivery of
certificates for the Firm Units and certificates for the
Option Units, to the extent that the option to purchase the
Option Units is exercised on or before the third Business
Day (as defined in Section hereof) prior to the Closing
---
Date, as well as the Representatives' Warrant Agreement and
Representatives' Warrants and the respective payments
therefore shall be made at the offices of Neidiger, Tucker,
Bruner, Inc., 300 Plaza Level, 1675 Larimer Street, Denver,
Colorado 80202 (or such other place as mutually may be
agreed upon by the Representatives and the Company), at
a.m., Denver, Colorado time, on the fourth full
- ---------
Business Day following the effective date of the
Registration Statement (the "Closing Date"); provided that
such date may be accelerated or extended by agreement of the
Company and the Representatives or postponed pursuant to the
provisions of Section 12 hereof.
The option to purchase Option Units granted in Section
2 hereof may be exercised during the term thereof by written
notice from the Representatives to the Company. Such notice
shall set forth the aggregate number of Option Units as to
which the option is being exercised and the time and date,
not earlier than either the Closing Date or the second
Business Day after the date on which the option shall have
been exercised nor later then the fifth Business Day after
the date of such exercise, as determined by Representatives,
when the Option Units are to be delivered (the "Option
Closing Date"). Delivery and payment for such Option Units
is to be at the offices set forth above for delivery and
payment of the Firm Units.
Delivery of certificates for the Firm Units and any
Option Units shall be made by or on behalf of the Company
through the facilities of the Depository Trust Company
("DTC") to the Representatives, for the respective accounts
of the Underwriters, against payment by the Representatives
of the purchase price therefor by federal funds or by
certified or official bank check payable in Denver Clearing
House Funds to the order of the Company. Certificates for
the Units shall be registered in such names and
denominations as the Representatives shall have requested at
least two full Business Days prior to the applicable Closing
Date, and shall be made available for checking and packaging
at a location as may be designated by the Representatives at
least one full Business Day prior to such Closing Date.
Time shall be of the essence, and delivery at the time and
place specified in this Underwriting Agreement is a further
condition to the obligations of each underwriter.
12
<PAGE>
4. Covenants. The Company covenants and agrees with
each Underwriter as follows:
(a) The Company shall comply with the provisions
of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424(b) under the Act and
notify you in writing of all such filings. The Company
shall use its best efforts to cause the Registration
Statement and any amendment thereto to become effective and,
upon notification from the Commission that the Registration
Statement or any amendment thereto has become effective,
shall so advise you immediately, in writing. The Company
shall notify you promptly of any request by the Commission
for any amendment or of supplement to the Registration
Statement or the Prospectus or for additional information;
the Company shall carefully prepare and file with the
Commission promptly upon your request, any amendment of or
supplement to the Registration Statement or Prospectus
which, in your reasonable opinion, may be necessary or
advisable in connection with the distribution of the
Securities; and the Company shall not file any amendment of
or supplement to the Registration Statement or the
Prospectus which is not approved by you after reasonable
notice from the Company to you, which approval shall not be
unreasonably withheld or delayed. The Company shall advise
you immediately of the issuance by the Commission, any state
securities commission or any other regulatory body of any
stop order or other order suspending the effectiveness of
the Registration Statement, suspending or preventing the use
of any Preliminary Prospectus or the Prospectus or
suspending the qualification of the Securities for offering
or sale in any jurisdiction, or of the institution of any
proceedings for any such purpose; and the Company shall use
its best efforts to prevent the issuance of any stop order
or other such order and, should a stop order or other such
order be issued, to obtain as soon as possible the lifting
thereof.
(b) The Company shall cooperate with you and your
counsel in connection with the registration or qualification
of the Securities for sale under the securities or "blue
sky" laws of such jurisdictions as the Representatives shall
designate and the continuance of such qualification in
effect for so long a period as the Representatives may
reasonably request, except the Company shall not be required
to qualify as a foreign corporation or in any jurisdiction
where it is not already so qualified or to execute a general
consent to service of process in actions other then those
arising out of the offer and sale of the Securities or to
take any action which would subject it to taxation in any
jurisdiction where it is not now so subject.
(c) Within the time during which a Prospectus
relating to the Securities required to be delivered under
the Act, the Company shall 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 is necessary to permit the
continuance of sales of or dealings in the Securities as
contemplated by the provisions hereof and the Prospectus.
If during such period any event occurs as a result of which
the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or would omit to
state a material fact necessary to make the statements
therein, in light of the circumstances then existing, not
misleading, or if during such period it is otherwise
necessary, in the opinion of the Company or in your opinion,
to amend the Registration Statement or supplement the
Prospectus to comply with the Act, the Company or you, as
the case may be, shall promptly notify the other party and
the Company shall amend the Registration Statement or
supplement the
13
<PAGE>
Prospectus to comply with the Act, the Company or you, as the
case may be, shall promptly notify the other party and the
Company shall amend the Registration Statement or supplement the
Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
(d) The Company shall make generally available to
its security holders and to the registered holders of the
Redeemable Warrants (and shall deliver to you), in the
manner contemplated by Rule 158(b) under the Act, as soon as
practicable but in any event not later then 45 days after
the end of its fiscal quarter in which the first anniversary
date of the effective date of Registration Statement occurs,
an earnings statement satisfying the requirements of Section
11(a) of the Act covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement.
(e) For a period of five (5) years from the
effective date of the Registration Statement, the Company
will deliver to you on a timely basis (i) a copy of each
report, including, without limitation, reports on Form 8-K,
10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) or any successor
form and exhibits thereto filed with or furnished by the
Company to the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD") on
the date each such report or document is so filed or
furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as
practicable, a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E-4 (or any successor form) received or prepared by the
Company from time to time; and (iv) such additional
information concerning the business and financial condition
of the Company as you may from time to time reasonably
request and which can be prepared or obtained by the Company
without unreasonable effort or expense.
(f) The Company shall furnish or cause to be
furnished to the Representatives or on the Representatives'
order, without charge, at such place as the Representatives
may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies shall
be manually signed and shall include all 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 Representatives may
request.
(g) For a period of twelve months following the
Closing Date, the Company shall not, directly or indirectly,
without the Representatives' prior written consent, offer,
issue, sell, grant any option to purchase, or otherwise
dispose of or contract to dispose of (or announce any offer,
sale, grant of an option to purchase of other disposition),
for value or otherwise, any shares of Common Stock or other
equity securities of the Company or any securities
convertible into or exchangeable or exercisable for shares
of Common Stock, or other such equity securities, except the
Securities, the Representatives' Securities, those options
to purchase shares of
14
<PAGE>
Common Stock issued under the
Company's 1996 Directors' Stock Option Plan and those other
options to purchase shares of Common Stock (collectively,
the "Options") and shares of Common Stock issued upon
exercise of the Options, as said Options are described in
the Prospectus.
(h) The Company shall cause each of its officers,
directors and such other shareholders designated by the
Representatives to furnish to the Representatives, on or
prior to the Closing Date, a binding agreement, in form and
substance reasonably satisfactory to Representatives'
counsel, pursuant to which each such person shall agree not
to, directly or indirectly, publicly sell or otherwise
publicly dispose or contract to dispose (or announce any
offer, sale, grant of any option to the purchase or other
disposition) of any shares of Common Stock or other equity
securities of the Company owed by them of record or
beneficially during the thirteen month period following the
Closing Date, without your prior written approval.
(i) The Company shall not take, or permit any of
its officers of directors or shareholders or any affiliate
(within the meaning of the term "affiliate" in the Rules and
Regulations) to take, directly or indirectly, any action
designed to or which has constituted or might reasonably be
expected to cause or result, under the Exchange Act or
otherwise, in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of the Securities; and has not effected any sales of
shares of Common Stock or other securities that are required
to be disclosed in response to Item 26 of Part II of the
Registration Statement.
(j) 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.
(k) 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.
(l) The Company shall use its best efforts to
maintain the inclusion of the Units, the Common Stock and
the Redeemable Warrants in the NASDAQ SmallCap Market and
the listing of the Units, the Common Stock and the
Redeemable Warrants on the Boston Stock Exchange. If at any
time the Common Stock qualifies for inclusion on the
National Market System of NASDAQ (the "NASDAQ NMS"), the
Company will use its best efforts to obtain and maintain
such inclusion in the NASDAQ NMS for so long as the Common
Stock qualifies.
(m) For a period of three years from the Closing
Date, the Company shall (i) furnish to the Representative,
as and to the extent reasonably requested by the
Representative, at the Company's sole expense, with copies
of the Company's stock transfer sheets relating to the
Company's securities, and a current list of the holders of
all of the Company's securities,
15
<PAGE>
and including a list of the beneficial owners of
securities held by Depository Trust
Company; and (ii) retain such accounting firm as the
Company's independent public accountants as shall be
reasonable/acceptable to the Representatives.
(n) The Company shall take all necessary actions,
on an expedited basis, to be included effective with the
Closing Date in Standard and Poor's Corporate Records, Stock
Quotes and Stock Guide published by Standard and Poor's
Corporation and to continue such inclusion for a period of
not less than seven years from the Closing Date.
(o) Until that date which is 60 days after the
effective date of the Registration Statement the Company
shall not, without the prior written consent of the
Representatives 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 for the
Representatives and the Company have advised are necessary
to comply with applicable law.
(p) Until after the earlier of (i) six years from
the date hereof, and (ii) the sale to the public of all of
the Representatives' 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 Representatives' Securities.
(q) For a period of 3 years from the effective
date of the Registration Statement, the Company agrees that
NTB shall have the right to designate one person as an
advisor to the Company's Board of Directors. Such advisor
will be reimbursed for his or her expenses in attending
meetings of the Board of Directors and will receive cash
compensation equal to that received by any other outside
director but will have no power to vote as a director. Such
person shall be indemnified by the Company against any claim
arising out of his or her participation in meetings of the
Board of Directors to the same extent as directors. During
the stated 3 year period, the Representatives' advisor to
the Company's Board of Directors will be (i) invited to
attend all meetings of the Company's Board of Directors;
(ii) provided with a copy of all Actions by Unanimous
Written Consent of the Board of Directors in Lieu of an
Actual Meeting; (iii) furnished with a copy of all public
filings by the Company and Company press releases as
released; (iv) updated by the Company's management, on at
least a quarterly basis, regarding the Company's activities,
prospects and financial condition; and (v) advised
immediately of material events to the extent consistent with
applicable law. During the subject 3 year period, the
Company shall hold meetings of its Board of Directors at
intervals of not less than once each calendar quarter. Any
advisor to the Company's Board of Directors designated by
NTB shall be acceptable to the Company, which acceptance
shall not be unreasonably withheld.
(r) Upon the exercise of any Redeemable Warrants
after , 1998 (12 months after the effective
---------------
date of the Registration Statement), and assuming that the
16
<PAGE>
Company desires assistance to solicit the exercise of the
Redeemable Warrants, the Company will pay NTB a solicitation
fee of 5% of the aggregate exercise price of such Redeemable
Warrants which are exercised through its efforts and with
its assistance, if (i) the market price of the Common Stock
is greater than the exercise price of the Redeemable
Warrants on the date of exercise, (ii) written confirmation
by the warrantholder that the exercise of the Redeemable
Warrant was solicited by NTB and that NTB is designated to
receive the solicitation fee, (iii) the Redeemable Warrant
is not held in a discretionary account, (iv) disclosure of
compensation arrangements has been made in documents
provided to the warrantholder (such as the Prospectus) both
as part of the original offering and at the time of exercise
and (v) the solicitation of the Warrant was not in violation
of Rule 10b-6 promulgated under the Exchange Act.
Notwithstanding the foregoing, the Company hereby retains
the right to provide notice of redemption of the Redeemable
Warrants in accordance wit the terms of the Warrant
Agreement and (ii) the parties hereby acknowledge and agree
that NTB shall have no authority to solicit the exercise of
any Redeemable Warrant unless such solicitation is requested
in writing by the Company.
(s) For a period of 12 months from the effective
date of the Registration Statement, the Company shall not
authorize or otherwise effect any change in the compensation
to any officer and/or director of the Company without 30
days' prior written notice to the Representatives.
(t) On the Closing Date, the Company shall enter
into a consulting agreement ("Financial Consulting
Agreement"), retaining NTB, individually, and not as
Representatives of the Underwriters, as financial consultant
to the Company for a period of 36 months for a fee of
$70,000 payable in full on the Closing Date.
5. Payment of Expenses. The Company shall 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, the Representatives'
Warrant Agreement, the Financial Consulting 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 the Prospectus and any amendments
thereof or supplements thereto supplied to the Underwriters
and such dealers as the Underwriters may request, in the
quantities requested, (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 Representatives of the
Representatives' Warrants from the Company, and (y) the
consummation by the Company of any of its obligations under
this
17
<PAGE>
Agreement, the Warrant Agreement, the Representatives'
Warrant Agreement, the Financial Consulting Agreement as
required herein, and (z) resale of the Securities by the
Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the
Securities and the Representatives' 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 Securities,
(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, the Boston Stock Exchange and
any other exchange or market system. In addition, the
Company shall also pay you, individually, and not in your
capacity as Representative, at the applicable Closing Date,
a non-accountable expense allowance equal to 3% of the
initial public offering price of the Securities purchased on
such Closing Date (including Option Units purchased pursuant
to the option granted pursuant to Section 2 hereof). If the
sale of the Units provided for herein is not consummated by
reason of any termination of this Agreement pursuant to
Section 8(b) hereof, or by reason any failure, refusal or
inability on the part of the Company to perform any
agreement on its part to be performed hereunder or because
any condition of the Underwriters' obligations set forth in
Section herein is not fulfilled, the Company shall
---
reimburse NTB for all of its accountable out-of-pocket
expenses (including fees and disbursements of its counsel)
actually incurred in connection with the investigation,
preparing to market and marketing of the Units or in
contemplation of performing Representatives' obligations
hereunder, such reimbursement not to exceed $50,000,
inclusive of the $20,000 previously paid to NTB by the
Company. You acknowledge that $20,000 has been paid to you
by the Company to be applied against the stated
non-accountable expense allowance as well as $86,539
previously paid by the Company to First United Equities
Corporation. You agree to promptly repay the Company as to
any portion of the $20,000 advanced to you which is not
necessary to reimburse you for your out-of- pocket expenses
actually incurred if the sale of the Securities, as
contemplated by this agreement, is not consummated for any
reason.
6. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay
for the Securities described in Section 2(a) and 2(b) hereof
shall be subject, in the Representatives sole discretion, 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 such Closing Date as
if made on and as of such Closing Date, to the accuracy of
the statements of the Company's officers made pursuant to
the provisions hereof, to the performance by the Company of
its covenants and obligations hereunder and to the following
further conditions:
18
<PAGE>
(a) The Registration Statement shall have become
effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued 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 (to be provided in the Registration Statement or
otherwise) shall have been complied with to the reasonable
satisfaction of Representative. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the
price 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 Representatives of such timely
filing, or a post-effective amendment providing information
shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules
and Regulations.
(b) The Representatives shall not have advised
the Company that the Registration Statement, or any
amendment thereto, contains an untrue statement of fact
that, in the Representatives' opinion, is material, or omits
to state a fact that, in the Representatives' 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 Representatives'
opinion, is material, or omits to state a fact that, in the
Representatives' 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 each Closing Date, the
Representatives shall have received from Underwriters'
counsel, such opinion or opinions with respect to the
organization of the Company, the validity of the Securities,
the Representatives' Warrants, the Registration Statement,
the Prospectus, and other related matters as the
Representatives may request and Underwriters' counsel shall
have received such documents and information as they request
to enable them to pass upon such matters.
(d) On the Closing Date, there shall have been
delivered to the Representatives the favorable opinion
(addressed to you as the Representatives) of Palmer & Dodge
LLP, counsel to the Company ("Company Counsel"), dated the
Closing Date, and in form and substance satisfactory to
Underwriters' counsel and stating that it may be relied upon
by Underwriters' counsel in giving their opinion, if
required by you, covering the matters on Annex A attached
hereto.
(e) On the Closing Date, there shall have been
delivered to you the favorable opinion (addressed to you as
the Representative) of Bromberg & Sunstein, patent counsel
to the Company ("Patent Counsel"), dated the Closing Date,
and in form and substance satisfactory to Underwriters'
counsel and stating that it may be relied upon by
Underwriters' counsel in giving their opinion, if required
by you, covering the matters on Annex B attached hereto.
19
<PAGE>
(f) At each Option Closing Date, if any, there shall have
been delivered to you the favorable opinions (addressed to you as the
Representatives) of Company Counsel and Patent Counsel, respectively, each
dated the Option Closing Date, 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 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.
(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
Representatives' 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 have
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
1. 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
20
<PAGE>
or satisfied at or prior to such Closing Date or Option Closing Date,
as the case may be;
2. 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;
3. 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 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
4. 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.
21
<PAGE>
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 Representatives 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.
(l) On the date of execution of this Agreement and on 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 Representatives 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 Representatives for its
account and the several Underwriters' accounts, certificates representing the
appropriate numbers and types of Representatives' Securities and Securities,
as the case may be, against payment therefor as provided herein.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection ( ) of
--
Section 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 Representatives, (i) the Representatives' Warrant Agreement,
in the form attached hereto as Exhibit A, and (ii) the Representatives'
Warrants, in such denominations and to such designees (who must be officers
of the Representative) as shall have been requested by the Representatives.
22
<PAGE>
(p) On or before Closing Date, the Units, the Common Stock and the
Redeemable Warrants each shall have been duly approved for quotation on the
NASDAQ SmallCap Market and listing on the Boston Stock Exchange, subject to
official notice of issuance.
(q) Since the effective date of the Registration Statement, the
Company shall not have sustained any loss by fire, flood, accident or other
calamity, nor shall it have become a party to or the subject of any
litigation, individually or in the aggregate, which is materially adverse to
the Company, nor shall there have been a material adverse change in the
general affairs, business, key personnel, capitalization, financial position
or net worth of the Company, whether or not arising in the ordinary course of
business, which loss, litigation or change, in your reasonable judgment,
shall render it inadvisable to proceed with the delivery of the Securities.
(r) Subsequent to the date of this Agreement or, if earlier, the
dates as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraph (f) of this
Section or (ii) any change, or any development involving a prospective
-----
change, in or affecting the business or properties of the Company the effect
of which, in any case referred to in clause (i) or (ii) above, is, in the
judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).
(s) On or prior to the date of this Agreement, the NASD shall have
approved the terms of the Underwriters' participation in the distribution of
the Securities described in Sections 2(a) and 2(b) to be sold pursuant to the
Registration Statement and the Prospectus.
(t) At or prior to the Closing Date, the Representatives' Warrant
Agreement shall have been entered into by the Company and you, and the
Representatives' Warrants shall have been sold to you and issued to you
and/or your designees pursuant to the Representatives' Warrant Agreement.
(u) At or prior to the Closing Date, you shall have received the
written agreements and representations described in Section 4( ), ( ) and
--- ---
( ) hereof.
---
(v) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
If any of the conditions specified in this Section shall not
----
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects
23
<PAGE>
reasonably satisfactory in form and substance to the Representatives and
counsel for the Representatives, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the
Closing Date by the Representatives. Notice of such cancellation shall be
given to the Company in writing, or by telephone or facsimile and confirmed
in writing.
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
Representatives may terminate this Agreement or, if the Representatives so
elect, waive any such conditions that have not been fulfilled or extend the
time for their fulfillment.
7. 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 in (i) Section 1 of
this Agreement, the Registration Statement, any Preliminary Prospectus or the
Prospectus (as from time to time amended and supplemented); (ii) 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) 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 or on behalf of the Company filed 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, the NASD or any other
securities association, the NASDAQ SmallCap Market or any other securities
exchange; or arise out of or are based upon 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
light of the circumstances under which they were made), provided however,
that the Company will not be liable in any such case to the extent that any
such Losses arise out of or are based upon any such untrue statement or
omission or alleged untrue statement or omission made therein in reliance
upon and in strict conformity with written
24
<PAGE>
information furnished to the Company with respect to any underwriter by or on
behalf of such underwriter expressly for use in the Registration Statement,
any Preliminary Prospectus or Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be; provided
further, that with respect to any untrue statement or omission, or any
alleged untrue statement or omission, made in any Preliminary Prospectus, the
indemnity agreement contained in this Section 8 shall not inure to the
benefit to any Underwriter (or to the benefit of any person controlling any
such Underwriter) from whom the person asserting any such Losses purchased
the Securities concerned to the extent that any such Losses result from the
fact that a copy of the Prospectus was not sent or given to such person at or
prior to the written confirmation of the sale of such Securities as required
by the Act, and if the untrue statement or omission has been corrected in the
Prospectus, unless such failure to deliver the Prospectus was the result of
noncompliance by the Company with its obligations under Section ( )
---- --
hereof. The Company will not, without the prior written consent of each
Underwriter settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such
underwriter or any person who controls such underwriter is a party to such
claim, action, suit or proceeding), unless the settlement or compromise or
consent includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit
or proceeding, reasonably satisfactory in form and substance to the
Representative.
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 Underwriter 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 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 each
Underwriter, but only with respect to statements or omissions, if any, made
in the Registration Statement, any Preliminary Prospectus or Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon written information relating to such Underwriter furnished to
the Company by or on behalf of such Underwriter expressly for use in such
Registration Statement, any Preliminary Prospectus or Prospectus or any
amendment thereof or supplement thereto or in any such application. The
Company acknowledges that the corporate names set forth on the front cover
page and the information under the caption "Underwriting" 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.
25
<PAGE>
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, suit or proceeding, the indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying parties under
such subsection, notify each indemnifying party in writing of the claim or
commencement of that action; and the failure to notify the indemnifying party
shall not relieve it from any liability that it may have to an indemnified
party otherwise then under such subsection. 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 patties 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 subsection 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.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified patty 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 or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to in subsection (a) or (b) above and (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 (A) 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
26
<PAGE>
connection with the statements or omissions that resulted in such Losses, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the underwriters shall be deemed to be in same
proportion that the total net proceeds from the offering of the Securities
(before deducting expenses other then the non- accountable expense Losses
received by the Company and the total underwriting discounts and commissions
received by the underwriters bear to one another. 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 subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Securities underwrite by it and distributed to the public exceeds
the amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. 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 agrees that, 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.
8. 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 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 Representatives' Securities to the Representatives, as the case may
be.
27
<PAGE>
9. Effective Date. This Agreement shall become effective at 10:00
a.m., Denver time, on the earlier of (i) the first full business day
following the date the Registration Statement becomes effective or (ii) at
such time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Firm Units for the sale
to the public; provided, however, that the provisions of Sections , and
--- ---
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 Representatives of
telegrams to securities dealers releasing such Securities for offering or the
release by the Representatives for publication of the first newspaper
advertisement that is subsequently published relating to the Securities.
10. Termination.
(a) The Representatives 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 payments for the Securities if prior to such
time any of the following occurs: (i) the Company shall have failed, refused
or been unable to perform any agreement on its part to be performed hereunder
unless compliance therewith or performance or satisfaction thereof shall have
been expressly waived in writing by the Representatives; (ii) any other
condition of the obligations of the Underwriters hereunder is not fulfilled;
(iii) there shall have occurred any material adverse change, since the
respective dates as of which information is given in the Prospectus, in or
affecting the business or financial condition of the Company or the Company's
earnings, business affairs, management or prospects of the Company, whether
or not arising in the ordinary course of its business; (iv) there shall have
occurred an outbreak of major hostilities (or an escalation thereof) in which
the United States is involved, a declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on
financial markets is such as to result, in your judgment, in a material
impairment of this Agreement by making it impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto); (v) there shall have
occurred suspension of trading in securities on the New York Stock Exchange,
the American Stock Exchange, the Boston Stock Exchange or the NASDAQ market
system or minimum or maximum prices shall have been established on any of
said Exchange or market system; (vi) a banking moratorium shall have been
declared by federal or state authorities; (vii) there shall have occurred any
action by any federal, state or local government or agency in respect to
monetary or fiscal affairs or regulations affecting pharmaceuticals which in
the reasonable opinion of the Representatives have a material adverse effect
on the securities markets in the United States or the business prospects of
the Company or business generally; or (viii) if Dr. Katherine Gordon no
longer serves the Company in her present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of subsection (a) above, neither party shall
have any further obligation to the other party except that (i) the Company
shall be responsible for any unpaid expenses under Section ( ) up through
--- ---
the date of such termination (it being understood that the aggregate amount
of expenses payable pursuant to this Section shall not exceed the aggregate
amount of
28
<PAGE>
accountable expenses incurred by the Representatives) and (ii) both parties
shall continue to have the obligations set forth in Section 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 Representatives, 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 or Section hereof
--- ---
hereof) then the Company shall promptly reimburse and indemnify the
Representatives for the expenses payable under Section ( ), 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 and Section 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.
11. 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 ,
---
Section or Section hereof) to purchase the Securities which it or
--- ---
they are obligated to purchase on such date under this Agreement (the
"Defaulted Securities"), the Representatives 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 Representatives 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.
In the event of any such default that does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven Business Days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
12. 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
29
<PAGE>
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 Representatives' option, by notice from the
Representatives 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.
13. 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 Representatives in care
of Neidiger, Tucker, Bruner, Inc. at 300 Plaza Level, 1675 Larimer Street,
Denver, Colorado 80202, Attn: Mr. Anthony B. Petrelli, Senior Vice
President, with a copy to John B. Herbert, P.C., 310 Plaza Level, 1675
Larimer Street, Denver, Colorado 80202, Attn: John G. Herbert, 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.
14. 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 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.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado, without
giving effect to its choice of law or conflict of laws principles.
16. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado without giving any
effect to any choice of law or conflict of law provision or rule whether of
the State of Colorado or any other jurisdiction that would cause the
application of the laws of any jurisdiction other than the State of Colorado.
The parties agree to the exclusive jurisdiction of the courts of the State
of Colorado or of the United States of America for the District of Colorado,
and irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive, in connection with any action brought by any party hereto relating
to this Agreement or the transactions which are the subject matter hereof.
30
<PAGE>
17. Entire Agreement: Amendments. This Agreement and the
Representatives' 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 April , 1997
----
between the Company and NTB. This Agreement may not be amended except in a
writing signed by the Representatives and the Company.
18. 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.
31
<PAGE>
19. Definition of Business Day. For purposes of this Agreement,
"Business Day" means any day on which the New York Stock Exchange, Inc. is
open for trading.
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 Chief Executive Officer
Confirmed and accepted
as of the date first above written:
NEIDIGER, TUCKER, BRUNER, INC. and
WESTPORT RESOURCES INVESTMENT
SERVICES, INC.
As Representatives of the several Underwriters
named in the attached Schedule I hereto
By: NEIDIGER, TUCKER, BRUNER, INC.
By
--------------------------------------------------
Anthony B. Petrelli
Senior Vice President
By: WESTPORT RESOURCES INVESTMENT
SERVICES, INC.
By
--------------------------------------------------
Name:
Title:
32
<PAGE>
SCHEDULE I
Number of Firm
Name of Underwriter Units to be Purchased
- ------------------- ---------------------
Neidiger, Tucker, Bruner, Inc. . . . . . . . . . . .
Westport Resources Investment Services, Inc. . . . .
---------
TOTAL 500,000
-----------
-----------
33
<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 Representatives' Warrant Shares, when issued upon exercise in
accordance with the terms of the Warrant Agreement and the Representatives'
Warrant Agreement will be, duly and validly authorized and issued, fully paid
and non-accessible with no personal liability 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.
1
<PAGE>
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.
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 Representatives'Warrant Agreement and the Representatives'
Warrants and to consummate the transactions contemplated thereby.
9. Each of the Underwriting Agreement, the Warrant Agreement, the
Redeemable Warrants, the Representatives' Warrants Agreement and the
Representatives' Warrants has been duly authorized, executed, and delivered
by the Company. Each of the Underwriting Agreement, the Warrant Agreement,
the Redeemable Warrants, the Representatives'Warrant Agreement and the
Representatives' 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 Representatives' Warrant Agreement and the
Representatives' 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 Representatives' Warrant Agreement and the Representatives' Warrants.
Except for the registration of the Securities under
2
<PAGE>
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, the
Representatives' Warrant Agreement and the Representatives' 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 Right" in the Preliminary Prospectus
and except for registration rights applicable to the Representatives'
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 SmallCap Market upon official notice of issuance of the shares
by the Company to The Nasdaq SmallCap 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
1. Such counsel represents the Company in certain matters relating
to intellectual property, including patents and proprietary rights;
2. 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");
3. 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;
4. 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;
5. 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
6. 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).
1
<PAGE>
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.
2
<PAGE>
ANNEX C
Matters to be Covered in the Comfort Letter
of Richard A. Eisner & Co.
1. 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;
2. 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 Representatives may rely upon the opinion of Richard Eisner &
Co. LLP with respect to the financial statements and supporting schedules
included in the Registration Statement;
3. 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 mailers 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
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;
1
<PAGE>
4. 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;
5. 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;
6. 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
7. Statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
2
<PAGE>
EXHIBIT A
(See Exhibit 10.16 to this Registration Statement.)
<PAGE>
EXHIBIT 4.2
APOLLO BIOPHARMACEUTICS, INC.
CUSIP 03759Y 11 0
THIS CERTIFIES THAT, for valued received,
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One 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,
$.02 par value, of Apollo BioPharmaceutics, Inc., a Delaware corporation (the
"Company") at any time prior to the Time of Expiry (as hereinafter defined)
upon the presentation and surrender of this Warrant Certificate with the
Election to Purchase Form on the reverse hereof duly executed, at the
corporate office of American Stock Transfer & Trust Company, as Warrant Agent,
or its successor (the "Warrant Agent"), accompanied by payment of $ ,
-----------
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated
among the Company, Neidiger, Tucker, Bruner, Inc. and the
- ---------------
Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase 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 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 "Time of Expiry" shall mean 5:00 p.m. (New York time) on
. If such date shall in the Sate of New York be a Saturday,
- --------------
Sunday or a civic or statutory holiday, then the Time of Expiry shall mean
5:00 p.m. (New York time) the next following day which in the State of New
York is not a Saturday, Sunday or a civic or statutory holiday.
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 "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under
the Federal securities laws, use its best efforts to cause the same to become
effective, to keep such registration statement current, if required under the
Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant.
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 as shall be designated by such Registered
Holder at the time of such surrender. Upon due 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 representing an equal aggregate number of Warrants
will be issued to the transferee in exchange therefor, subject to limitations
provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement and commencing
[one year from the date of the Prospectus], this Warrant is subject to
redemption by the Company, on not less than 30 days' prior written notice, at
a price of $ 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 the Nasdaq Stock Market ("Nasdaq"), so
long as the Company's Common Stock is quoted thereon or, if the Company's
Common Stock is listed on a securities exchange, 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. The
Holder of this Warrant will automatically forfeit the Holder's right to
purchase the shares of Common Stock issuable upon exercise of this Warrant
unless the Warrant is exercised before it is redeemed. A notice of
<PAGE>
redemption will be mailed 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 certificate shall be
delivered and the date of expiration of the right to exercise the Warrant.
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.
The Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflict
of law principles.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has duly executed this Warrant Certificate
manually or in facsimile by two of its officers thereunto duly authorized and
a facsimile of its corporate seal to be imprinted hereon.
By: /s/ John J. Curry By: /s/ Katherine Gordon
-------------------------- --------------------------
Treasurer President
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to
- ----------------
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[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.
<PAGE>
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below.
(Name of NASD Member)
Dated: X
------------- --------------------------------------
--------------------------------------
--------------------------------------
Address
--------------------------------------
Taxpayer Identification Number
--------------------------------------
Signature Guaranteed
<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
---------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company,
with full power of substitution in the premises.
Dated: X
------------ --------------------------------------
Signature Guaranteed:
THE SIGNATURE TO THE ASSIGNMENT OR THE ELECTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND
MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE. IF THE ASSIGNMENT OF THE FORM IS SIGNED PURSUANT
TO A POWER OF ATTORNEY, SUCH POWER OF ATTORNEY MUST BE ATTACHED HERETO.
<PAGE>
Apollo BioPharmaceutics, Inc.
UNITS
-------
UNIT CERTIFICATE
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK, PAR VALUE
$.02 AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
CUSIP 03759Y 20 1
Apollo BioPharmaceutics, Inc.
THIS CERTIFIES THAT, FOR VALUE RECEIVED,
-----------------------------
or registered assigns (the"Registered Holder") is the owner of the
number of Units specified above, each of which consists of two
shares of Common Stock, par value $.02, and one Redeemable Common
Stock Purchase Warrant (the "Warrant"). Each Warrant entitles the
holder to purchase one share of Common Stock, at an exercise price of
$ at any time commencing on , 1997, through
----- ----------------
, 2002. The Warrants are redeemable by the
- -----------------
Company at a redemption price of $ per Warrant at
------
any time commencing [one year from the date of the Prospectus] on 30 days'
prior written notice, provided that 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).
------
The shares of Common Stock and Warrants composing the Units shall
be separately tradeable [twelve months after the closing date of the
Offering]. The Warrants can only be redeemed if a current prospectus
covering the Warrants and the shares of Common Stock issuable thereunder
is then in effect. The terms of the Warrants are governed by a Warrant
Agreement dated as of May , 1997 (the "Warrant Agreement") between
-----
the Company and American Stock Transfer & Trust Company as Warrant Agent
(the "Warrant Agent") and are subject to the terms and provisions contained
therein and on the face of the Warrant Certificates, to all of which terms
and provisions the holder of this Unit Certificate consents by acceptance
hereof.
Copies of the Warrant Agreement are on file at the office of the Warrant
Agent at American Stock Transfer & Trust Company, 40 Wall Street, New York,
NY 10005, and are available to any Warrant holder on written request and
without cost.
This Unit Certificate is not valid unless countersigned by the Transfer
Agent and Registrar of the Company.
IN WITNESS WHEREOF, the Company has caused this Unit 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:
------------
APOLLO BIOPHARMACEUTICS, INC.
By: /s/ John J. Curry
-----------------
Treasurer
By: /s/ Katherine Gordon
--------------------
President
<PAGE>
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
New York, NY 10005
as Transfer Agent and Registrar
<PAGE>
Apollo BioPharmaceutics, Inc.
UNIT CERTIFICATE
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT ACT - Custodian
------------- -----------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list
STOCK AND WARRANTS EXCHANGE FORM
(To be executed by the registered holder to exercise the right to exchange
this Unit Certificate for that number of shares of Common Stock, par value
$.02 and Warrants evidenced by the Unit Certificate).
The undersigned hereby irrevocably tenders this Unit Certificate
in exchange for shares of Common Stock, par value $.02 and
--------
Warrants of Apollo BioPharmaceutics, Inc. pursuant to
-----------------
and in accordance with the terms and conditions of this Unit, and requests
that certificates be issued in the names of and in the denominations as
follows:
- -------------------------------------------------------------------------
and be delivered to:
Please insert Social Security or other
identifying number of assignee
- -------------------------------- ------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------
and, if such number of Shares and Warrants shall not be all the Shares and
Warrants to which the holder is entitled to hereunder, that Certificate(s) of
like tenor for the balance of the remaining Shares and Warrants to which the
holder is entitled to hereunder be delivered to the undersigned at the
address stated below:
Please insert Social Security or other
identifying number of assignee
- --------------------------------- -------------------------------------
(Please print name and address)
- ---------------------------------------------------------------------------
Dated:
--------------------------- -------------------------------------
(Signature)
(Signature must conform in all respects
to name of holder as specified on
the face of this Unit Certificate)
Signature Guaranteed:
-------------------------------------------------------
The signature should be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program),
pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of the
within Units)
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please insert Social Security or other
identifying number of assignee
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including postal
zip code of Assignee)
- -------------------------------------------------------------------------------
the within Unit together with all right, title and interest therein and does
hereby irrevocably constitute and appoint
attorney
- ----------------------------------------------------------------------
to transfer said Unit on the books of the within named Corporation,
with full power of substitution in the premises.
Dated:
-------------------------------- ---------------------------------
NOTICE: The signature to this
assignment must corresponded with
the name as written upon the
face of the within instrument
in every particular, without
alteration or enlargement
or any change whatever.
Signature Guaranteed:
-------------------------------------------
The signature should be guaranteed by an
eligible guarantor institution (banks,
stockbrokers, savings and loan associations
and credit unions with membership in an
approved signature guarantee medallion
program), pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 5
[LETTERHEAD]
April 29, 1997
Apollo BioPharmeceutics, Inc.
One Kendall Square
Building 200, Suite 2200
Cambridge, Massachusetts 02139
We are rendering this opinion in connection with the Registration
Statement on Form SB-2 (the "Registration Statement") filed by Apollo
BioPharmeceutics, Inc. (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, on or about the date
hereof. The Registration Statement relates to up to 575,000 units (each
"Unit" and collectively, the "Units"), each Unit consisting of two shares of
the Company's Common Stock, $0.02 par value (the "Common Stock"), and a
warrant to purchase one share of Common Stock (each, a "Warrant"). We
understand that the Units are to be offered and sold in the manner described
in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors on April 24, 1997 in connection with the authorization, issuance
and sale of the Units (the "Resolutions"). We have examined such other
documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of Common
Stock (the "Shares") and the warrants which comprise the units and the shares
of Common Stock issuable upon exercise of the warrants (the "Warrant Shares")
have been duly authorized and, the Shares, when issued and delivered by the
Company against payment therefor at the price to be determined pursuant to
the Resolutions and the Warrant Shares, when issued and delivered by the
Company upon exercise of the warrants and the payment of the exercise price
thereafter, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE>
FORM OF
EXHIBIT 10.15
APOLLO BIOPHARMACEUTICS, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
WARRANT AGREEMENT
Dated as of May __, 1997
<PAGE>
WARRANT AGREEMENT, dated the ___ day of May, 1997 (this
"Agreement"), between Apollo BioPharmaceutics, Inc., a Delaware corporation
(the "Company"), and American Stock Transfer and Trust Company, a Delaware
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 by the
Company (the "Public Offering") of up to 500,000 units (the "Units"), each
Unit consisting of two shares of the Company's Common Stock (as defined
below), $0.02 par value per share (the "Common Stock"), and one redeemable
warrant, 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
75,000 Units (the "Over-Allotment Option"), and (iii) the sale to Neidiger/
Tucker/ Bruner, Inc. and Westport Resources Investment Services, Inc., and
their respective successors and assigns (collectively, the "Representatives")
of warrants (the "Representatives' Warrants") to purchase up to 50,000 Units,
the Company will issue up to 625,000 Redeemable Warrants; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Redeemable 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 Redeemable Warrants and the exercise of the Redeemable
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 Redeemable Warrants and the certificates representing
the Redeemable Warrants and the respective rights and obligations thereunder
of the Company, the Representatives, the holders of certificates representing
the Redeemable 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) "Convertible Securities" shall have the meaning ascribed to it
in Section 8(b).
(f) "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 40 Wall Street, New York, New York 10005.
(g) "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 sale 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.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Redeemable Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate
representing such Redeemable 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.
(j) "Exercise Price" shall mean, with respect to any Redeemable
Warrant, the purchase price per share of Common Stock that must be paid to
the Company as a condition precedent to the exercise of such Redeemable
Warrant, which amount shall initially be, subject to modification and
adjustment as provided in Section 8 hereof, $6.50 per share and further
subject, 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 Representatives.
(k) "Initial Warrant Exercise Date" shall mean, with respect to
the Redeemable Warrants, May __, 1997 (the date of the Prospectus).
(l) "Initial Warrant Redemption Date" shall mean, with respect to
the Redeemable Warrants, May __, 1998 (12 months from the date of the
Prospectus).
(m) "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.
(n) "Redemption Price" shall mean $0.25 per Redeemable Warrant.
2
<PAGE>
(o) "Registered Holder" shall mean the person in whose name any
certificate representing the Redeemable Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6 hereof.
(p) "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.
(q) "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.
(r) "Transfer Agent" shall mean American Stock Transfer and Trust
Company, New York, New York, or its authorized successor.
(s) "Underwriting Agreement" shall mean the underwriting agreement
dated May __, 1997 (the date of the Prospectus) between the Company and the
Representatives, as representative of the several underwriters, relating to
the purchase for resale to the public of shares of Common Stock and
Redeemable Warrants.
(t) "Warrant Agent" shall have the meaning specified in the
introduction.
(u) "Warrant Certificates" shall mean in the case of Redeemable
Warrants, certificates representing each of the Redeemable Warrants
substantially in the form annexed hereto as Exhibit A.
(v) "Warrant Expiration Date" shall mean, with respect to the
Redeemable Warrants, 5:00 p.m. (New York time) on May __, 2002, 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.
SECTION 2. REDEEMABLE WARRANTS AND ISSUANCE OF WARRANT
CERTIFICATES. (a) One Redeemable Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Redeemable
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 500,000 Redeemable Warrants to purchase up to an aggregate of
500,000 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.
3
<PAGE>
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 75,000 Redeemable Warrants to
purchase up to an aggregate of 75,000 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.
(c) Upon exercise of the Representatives' Warrant, in whole or in
part, Warrant Certificates representing up to 50,000 Redeemable Warrants to
purchase up to an aggregate of 50,000 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) 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 and (iv) 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 Redeemable 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). 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 Redeemable Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated the
date 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.
4
<PAGE>
SECTION 4. EXERCISE. (a) Redeemable 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 Redeemable 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
Redeemable 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 Redeemable
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 or Units, as the case may be, which shall be
issuable upon exercise thereof shall be computed on the basis of the
aggregate number of full shares of Common Stock or Units, as the case may be,
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 Redeemable 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 or Units, as the case may be, 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 Redeemable 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 Redeemable Warrants less any amount payable to the Representatives
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 occurring on or after the first anniversary of the Initial Warrant
Exercise Date, the Warrant Agent shall, on a daily basis, within five
Business Days after such exercise, notify the Representatives, 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, 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
Representatives 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 Representatives 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 Representatives 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
5
<PAGE>
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
Representatives.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any
Redeemable Warrant or Redeemable 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 Redeemable Warrants and conversion of the Units, such number
of shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Redeemable Warrants. The Company covenants that all shares of
Common Stock which shall be issuable upon exercise of the Redeemable 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 Redeemable Warrants hereunder require
registration with, or approval of, any governmental authority under any
federal securities law before such securities may be validly issued or
delivered upon such exercise, 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 Redeemable
Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Securities Act, to the Registered Holder exercising
the Redeemable 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 Redeemable 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 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, Redeemable 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.
6
<PAGE>
(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 Redeemable Warrants, or the issuance or delivery of any shares of
Common Stock upon exercise of the Redeemable 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
Redeemable 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
Redeemable Warrants, and the Company will comply with all such requisitions.
(e) Prior to the exercise of any Redeemable 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 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 Redeemable 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 Redeemable 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.
(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.
7
<PAGE>
(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 Redeemable
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 Redeemable
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 for Redeemable
Warrants 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 for Redeemable
Warrants shall forthwith be proportionately decreased. An adjustment made
pursuant 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 Redeemable 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 Redeemable 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 Redeemable Warrants shall be entitled to
receive securities or other property with respect to or in exchange for the
securities issuable upon exercise of the Redeemable 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 provision whereby the Registered
Holder of each Redeemable Warrant then outstanding shall have the right
thereafter to receive on exercise of such Redeemable Warrant the kind and
amount of securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance, by a
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<PAGE>
holder of the number of securities issuable upon exercise of such Redeemable
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 Redeemable 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 Redeemable 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) Redeemable Warrant holders shall not be entitled to cash
dividends paid by the Company prior to the exercise of any Redeemable 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 Redeemable Warrants at the Redemption
Price, PROVIDED, HOWEVER, that before any such call for redemption of
Redeemable Warrants can take place, (A) the average closing sale 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 contemplated by (b) and (c) below is given,
equaled or exceeded
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<PAGE>
$10.00 per share (subject to adjustment in the event of any stock splits or
other similar events as provide in Section 8 hereof).
(b) If the Company shall exercise its right to redeem any or all
of the Redeemable Warrants, it shall give or cause to be given notice to the
Registered Holders of the Redeemable 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 Redeemable Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Representatives a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Redeemable Warrants beneficially owned) to whom such
notice of redemption has been or will be given and the number of Redeemable
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 Redeemable 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
Redeemable 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 Redeemable Warrant shall terminate at
5:00 p.m. (New York time) on the Business Day immediately preceding the
Redemption Date fixed for such Redeemable 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 Representatives and each
person, if any, who controls the Representatives 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
Representatives contained in Section 7 of the Underwriting Agreement.
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<PAGE>
(f) If and to the extent reasonably requested by the
Representatives, five Business Days prior to the Redemption Date, the Company
shall furnish to the Representatives (i) an opinion of counsel to the
Company, dated such date and addressed to the Representatives, and (ii) a
"cold comfort" letter dated such date addressed to the Representatives,
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 Redeemable
Warrants represented thereby or of any securities or other property delivered
upon exercise of any Redeemable Warrant or whether any stock issued upon
exercise of any Redeemable 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 Redeemable
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 Redeemable Warrants then outstanding; provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of
any Redeemable 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 Redeemable 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 Representatives pursuant to this Agreement shall be
delivered to Neidiger, Tucker, Bruner, Inc., Barclay Plaza, 1675 Larimer
Street #300, Denver, CO 80202, Attention Anthony B. Petrelli, 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 Delaware.
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 Representatives are, and shall
at all times irrevocably be deemed to be, a third-party beneficiaries of this
Agreement, with full power, authority and standing to enforce the rights
granted to it hereunder.
13
<PAGE>
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.
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 MAY_____, 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 May ____, 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 $6.50, 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 May _____, 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
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<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 May _____, 2002 (the date which is the fifth
anniversary of the Initial Warrant Exercise Date). If such date
shall in the City of Boston 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. (Boston
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,
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<PAGE>
equaled or exceeded $10.00 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,
Neidiger/ Tucker/ Bruner, Inc. 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 Delaware.
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 May _____, 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 Neidiger/ Tucker/
Bruner, Inc. 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>
FORM OF
APOLLO BIOPHARMACEUTICS, INC.
AND
NEIDIGER, TUCKER, BRUNER, INC.
AND
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
------------------------------------
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of , 1997
------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT, dated as of, 1997
------------
(this "Agreement"), between APOLLO
BIOPHARMACEUTICS, INC., a Delaware corporation (the
"Company"), NEIDIGER, TUCKER, BRUNER, INC. and WESTPORT
RESOURCES INVESTMENT SERVICES, INC. (the "Representatives").
W I T N E S E T H:
WHEREAS, the Representatives have agreed pursuant to
the underwriting agreement (the "Underwriting Agreement"),
dated , 1997, between the Representatives and
---------------
the Company to act as the representatives of the
Underwriters listed in the Underwriting Agreement (the
"Underwriters") in connection with the Company's proposed
public offering of 500,000 Units, each Unit consisting of
two shares of Common Stock and one Redeemable Warrant to
purchase one share of Common Stock (each, a "Unit" and
collectively, the "Units");
WHEREAS, pursuant to the Underwriting Agreement, the
Company proposes to issue to the Representatives 50,000
warrants ("Representatives' Warrants"), each
Representatives' Warrant entitling the registered holder
thereof to purchase one Unit;
WHEREAS, the Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a
registration statement, and a post effective amendment or
amendments thereto, on Form SB-2 (No. 333-18769) (the
"Registration Statement"), for the registration of the Units
and the underlying securities to be sold as part of the
Public Offering, the Representatives' Warrants and the
underlying Units and the securities underlying such Units
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 Representatives' 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 Representatives in consideration for,
and as part of the Representatives' compensation in
connection with the Representatives acting as the
Representatives pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, 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 50,000 Representatives' Warrants,
each Representatives' Warrant entitling the Holder the right
to
2
<PAGE>
purchase, at any time from , 1997
------------
until 5:00P.M., New York time, on , 2002
----------
(the "Exercise Period"), one Unit at an initial exercise price of $
-------
per Unit (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 Units
issuable upon exercise of the Representatives' Warrants are
in all respects identical to the Units 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 Representatives' 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 Representatives'
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 Units
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 Representatives'
Warrant. The method of payment set forth in Section 3.1
hereof is exclusive and no method of payment in lieu of cash
payment is permissible.
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,
3
<PAGE>
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 Representatives' Warrants, the issuance of certificates
for shares of Common Stock or other securities, property or
rights underlying such Representatives' 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 Representatives' 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 Representatives'
Warrants. The Holder of a Warrant Certificate, by its
acceptance thereof; covenants and agrees that the
Representatives' Warrants are being acquired as an
investment and not with a view to the distribution thereof;
that the Representatives' 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 Representatives; (ii) any
successor firm or corporation of the Representatives; or
(iii) in the case of an individual, pursuant to such
individual's last will and testament or the laws of descent
and distribution,
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices. Except
as otherwise provided in Section 8 hereof, the initial
exercise price of each Representatives' Warrant shall be
$ per Unit purchased thereunder. The adjusted
-------
exercise price of the Unit 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.
4
<PAGE>
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 Representatives' Warrants have been
registered under the Securities Act. If the registration
statement under which the Units underlying the
Representatives' Warrants and the other securities
underlying such Units issued or issuable upon exercise of
the Representatives' 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 Representatives' 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 Representatives
or the Holders, so as to permit a public offering and sale
of the Warrant Securities by the Representatives 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 Representatives'
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.
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
5
<PAGE>
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-S (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 Representatives and to all other Holders
of Representatives' Warrants and/or other Warrant Securities
of its intention to do so. If the Representatives or other
Holders of Representatives' 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 Representatives and such
Holders of the Representatives' 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
Representatives' 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
Representatives 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
Representatives' 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
Representatives and the other Holders, if any, of the
Representatives' 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 Representatives' 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 Representatives' 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
6
<PAGE>
Warrant Securities covered by such registration statement have been sold
pursuant thereto) by any such 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.
7
<PAGE>
(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 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
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 Representatives' 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 Representatives' 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
8
<PAGE>
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 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 hereto 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 Representatives. 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
Representatives' 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
Representatives' Warrants and/or Warrant Securities
(assuming the exercise of all of the Representatives'
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.
9
<PAGE>
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 representatives 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 , 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.
8.1 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 Representatives'
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 Representatives'
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.
10
<PAGE>
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 Representatives' Warrant
outstanding immediately prior to the effective time of such
consolidation or merger shall have the right thereafter
(until the expiration of such Representatives' Warrant) to
receive, upon exercise of such Representatives' 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 Representatives' 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 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 Representatives' 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
Representatives' 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
Representatives' 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 Representatives'
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
Representatives' 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 Representatives' Warrants shall be outstanding,
the Company shall use
11
<PAGE>
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Representatives' 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 Representatives' 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 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
(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:
12
<PAGE>
(a) If to the registered Holder of Representatives' 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
Representatives may from time to time supplement or amend
this Agreement without the approval of any holders of
Warrant Certificates (other than the Representatives) 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 Representatives may deem
necessary or desirable and that the Company and the
Representatives 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 Representatives' Warrant, or any increase in
the Exercise Price there for, 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
,2002. Notwithstanding the foregoing, the
- ----------------
indemnification provisions of Section 7 hereof shall survive
such termination until the close of business on
, 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 Representatives 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
Representatives 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 Representatives (at the option of the party
bringing such action, proceeding or claim) may be served by
transmitting
13
<PAGE>
a copy thereto 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 patty so served in any action, proceeding
or claim. The Company and the Representatives 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 Representatives
and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable
right, remedy or claim under this Agreement.
14
<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:
NEIDIGER, TUCKER, BRUNER, INC.
By:
----------------------------
Name:
Title:
[SEAL] WESTPORT RESOURCES INVESTMENT
SERVICES, INC.
Attest:
By:
- -------------------------- ----------------------------
Secretary Name:
Title:
15
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
No. W VOID AFTER , 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 Unit, such Unit consisting of two fully paid
and nonassessable share of Common Stock, $0.02 par value, of
Apollo BioPharmaceutics, Inc., a Delaware corporation (the
"Company"), and one Redeemable Warrant to purchase one share
of Common Stock at any time from , 1997 (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 $ , 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
Representatives' Warrant Agreement (the "Warrant
Agreement"), dated , 1997 [date of the
--------------
Prospectus], by and between the Company and Neidiger,
Tucker, Bruner, Inc. and Westport Resources Investment
Services, Inc. This Warrant Certificate is being issued
upon exercise of certain Representatives' Warrants issued by
the Company and dated as of , 1997.
-----------------
In the event of certain contingencies provided for
in the Warrant Agreement, the Exercise Price and the number
of Units subject to purchase upon the exercise of each
Warrant represented hereby are subject to modification or
adjustment.
<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 , 2002. 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 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
2
<PAGE>
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, equaled or exceeded $ 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 Representatives
or an affiliate of the Representatives, 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 hereto 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 Representatives or to
members of the Representatives' 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.
3
<PAGE>
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 , 1997
-----------------
SEAL APOLLO BIOPHARMACEUTICS, INC.
By:
-----------------------
Name:
Title:
By:
-----------------------
Name:
Title:
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:
--------------------------------
Authorized Officer
4
<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 Representatives'
Warrant Agreement dated as of , 1997 between
---------------
the Company and NEIDIGER, TUCKER, BRUNER, INC. and WESTPORT
RESOURCES INVESTMENT SERVICES, INC. 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)
<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)
Representatives' 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)
<PAGE>
, 1997
-------------
Dr. Katherine Gordon
President and Chief Executive Officer
Apollo BioPharmaceutics, Inc.
One Kendall Square, Suite 2200
Cambridge, Massachusetts 02139
Dear Dr. Gordon:
Section of our Underwriting Agreement dated
-----
, 1997 provides that Apollo BioPharmaceutics,
----------
Inc. ("Company") shall retain Neidiger, Tucker, Bruner, Inc
("NTB") as the Company's financial consultant with respect
to investment banking activities for a term of 36 months
commencing , 1997. The purpose of this letter
-------------
is to confirm our mutual understandings and agreement
concerning of the terms and conditions of such engagement.
1. Engagement. The Company hereby engages NTB as the
Company's financial consultant with respect to investment
banking activities and opportunities and NTB accepts such
engagement on the terms and conditions hereby set forth.
2. Financial Consulting Services. For a term of 36
months commencing , 1997, NTB, through the
--------------
offices of Anthony B. Petrelli, Senior Vice President,
Investment Banking Services, shall consult and advise the
Company, at the Company's request, from time to time, as to
market conditions, financial alternatives, resource
allocation, periodic review and advice with respect to the
Company's capital structure, banking methods and systems and
otherwise provide investment banking consultation and advice
in connection with the Company's business plans and
projections. Such advice and consultation are hereinafter
referred to as "Financial Consulting Services". The
Financial Consulting Services shall be provided by NTB to
the Company in such form, manner and place as the Company
shall make reasonable requests from time to time. NTB shall
not be prevented or barred from rendering Financial
Consulting Services of the same or similar nature, as herein
described, or services of any nature whatsoever for, or on
behalf of, persons or entities other than the Company.
Similarly, the Company shall not be prevented or barred from
seeking or requiring services of a same or similar nature
from persons other than NTB.
3. Extent of Financial Consulting Services to be
Provided. NTB shall be available to provide Financial
Consulting Services for not more than ten (10) hours per
month during the said 12 month period that such services are
to be provided ("Minimum Financial Consulting Services"). In
addition, NTB shall be available during said 36 month period
for an additional one person per day per month at the
request of the Company for the purpose of providing
additional Financial Consulting Services ("Additional
Financial Consulting Services"). NTB
<PAGE>
may, but shall not be required to, devote such additional
time to the Company asmay be requested by the Company. For
purposes of thisAgreement, a "person per day" shall be a total
of 8 hours ofwork by NTB's representative.
4. Compensation for Financial Consulting Services.
As compensation for the Minimum Financial Consulting
Services, the Company shall pay to NTB a fee of $70,000,
payable in full upon the Company's execution hereof. In
addition, subject to the provisions of Section 5 below, if
NTB provides Additional Financial Consulting Services to the
Company, NTB shall be compensated for such Additional
Financial Consulting Services at the rate of $1,500 for each
additional person per day, payable on the first day of the
month following the month in which such Additional Financial
Consulting Services were rendered.
5. Accumulation of Minimum Financial Consulting
Services. During the said 36 month period, any person per
day of Minimum Financial Consulting Services not requested
in the month in which the Company is entitled thereto may be
requested at any time during the immediately following
month's period. If not requested during such following
period, the Company waives performance and receipt of such
Minimum Financial Consulting Services.
6. Indemnification. The Company agrees to indemnify
and hold harmless NTB and the officers, directors and
employees of NTB against any and all losses, claims, damages
and expenses as incurred (including reasonable fees and
disbursement of counsel to NTB) arising out of the Financial
Consulting Services performed by NTB pursuant to this
Agreement except for claims, damages, losses, liabilities
and expenses caused by the negligence or willful misconduct
on the part of NTB, its officers, directors or employees.
7. Amendment. Any amendment or modifications of this
Agreement shall be by written instrument signed by the
parties.
8. Waiver. Any term or condition of this Agreement
may be waived in writing at any time and from time to time
by the party entitled to the benefit thereof, but a waiver
of a term or condition in one instance shall not be deemed
to constitute a waiver of such term or condition in any
other instance. A failure to enforce any provision of this
Agreement shall not operate as a waiver of provision or of
any other provision hereof.
9. Assignment. Any attempt by either party to assign
any right, duty, or obligation which may arise under this
Agreement, without the prior written consent of the other
party, shall be void.
10. Counterparts. This Agreement may be executed in
any number of counterparts, each of which may be deemed an
original and all of which together shall constitute one and
the same instrument.
11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Colorado without giving any effect to any choice of law
2
<PAGE>
or conflict of law provision or rule whether of the State of
Colorado or any other jurisdiction that would cause the
application of the laws of any jurisdiction other than the
State of Colorado. The parties agree to the exclusive
jurisdiction of the courts of the State of Colorado or of
the United States of America for the District of Colorado
and irrevocably submit to such jurisdiction, which
jurisdiction shall be exclusive, in connection with any
action brought by either party hereto relating to this
Agreement or the transactions which are the subject matter
hereof.
12. Entire Agreement. This Agreement sets forth the
entire understanding of the parties with respect to the
subject matter hereof and this Agreement shall be binding
and inure to the benefit of the parties and their respective
successors and assigns.
If the foregoing confirms your understanding of the
terms of our engagement, please sign in the space provided
below and the same shall become our written agreement with
respect to the subject matter.
NEIDIGER, TUCKER, BRUNER,INC.
By:
--------------------
Anthony B. Petrelli
Senior Vice President
Confirmed and accepted this day of ,1997.
--------- ----------
APOLLO BIOPHARMACEUTICS,INC.
By:
--------------------------------------
Katherine Gordon
President and Chief Executive Officer
3
<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.
/S/ RICHARD A. EISNER & COMPANY, LLP
------------------------------------
RICHARD A. EISNER & COMPANY, LLP
Cambridge, Massachusetts
April 28, 1997
