<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION NO. 333-47725
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANTHRA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5122 22-3007972
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
103 CARNEGIE CENTER, SUITE 102
PRINCETON, NEW JERSEY 08540
(609) 514-1060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL C. WALKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANTHRA PHARMACEUTICALS, INC.
103 CARNEGIE CENTER, SUITE 102
PRINCETON, NEW JERSEY 08540
(609) 514-1060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSEPH W. BARTLETT, ESQ. STANLEY R. GOLDSTEIN, ESQ.
MORRISON & FOERSTER LLP GOLDSTEIN & DIGIOIA LLP
1290 AVENUE OF THE AMERICAS 369 LEXINGTON AVENUE,
NEW YORK, NEW YORK 10104-0012 18TH FLOOR
(212) 468-8000 NEW YORK, NEW YORK 10017
(212) 599-3322
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the 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, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THE 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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one
share of Common Stock, and
one Warrant(2).............. 2,300,000 $5.00 $11,500,000 $3,392.50
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Units(3).................... 2,300,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Warrants underlying
Units(4).................... 2,300,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Warrants(5)................. 2,300,000 $6.00 $13,800,000 $4,071.00
- ------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrant(6)...... 1 $.001 $.001 $(7)
- ------------------------------------------------------------------------------------------------------------------------------
Underwriter's Units(8)........ 200,000 $7.00 $1,400,000 $413.00
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Underwriter's Units(9)...... 200,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Warrants underlying
Underwriter's Units(10)..... 200,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Warrants underlying
Underwriter's Units(11)..... 200,000 $6.00 $1,200,000 $354.00
- ------------------------------------------------------------------------------------------------------------------------------
Total......................... 10,000,001 -- $27,900,000.001 $8,230.50(12)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(2) Includes 300,000 Units subject to sale upon exercise of the Underwriter's
over-allotment option. See "Underwriting."
(3) Includes 300,000 shares of Common Stock subject to sale upon exercise of
the Underwriter's over-allotment option. See "Underwriting."
(4) Includes 300,000 Warrants subject to sale upon exercise of the
Underwriter's over-allotment option. See "Underwriting."
(5) Issuable upon exercise of the Warrants, together with such indeterminate
number of securities as may be issuable by reason of anti-dilution
provisions contained therein.
(6) The Underwriter's Warrant is for the purchase of Units.
(7) No fee due pursuant to Rule 457(g).
(8) Consists of Units issuable upon the exercise of the Underwriter's Warrant.
(9) Consists of Common Stock included in the Units issuable upon the exercise
of the Underwriter's Warrant.
(10) Consists of Warrants included in the Units issuable upon the exercise of
the Underwriter's Warrant.
(11) Consists of Common Stock issuable upon exercise of the Warrants included in
the Units issuable upon the exercise of the Underwriter's Warrant, together
with such indeterminate number of securities as may be issuable by reason
of anti-dilution provisions contained therein.
(12) The Registrant previously submitted $10,533.71 for the registration fee.
<PAGE> 3
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.
SUBJECT TO COMPLETION DATED SEPTEMBER 25, 1998
PRELIMINARY PROSPECTUS
2,000,000 UNITS
[ANTHRA PHARMACEUTICALS, INC. LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
------------------------
Anthra Pharmaceuticals, Inc. (together with its wholly owned subsidiary,
"Anthra" or the "Company") is offering 2,000,000 units ("Units"), each Unit
consisting of one share of the Company's common stock, par value $.01 per share
(the "Common Stock"), and one Class A redeemable common stock purchase warrant
to purchase one share of Common Stock (the "Warrants"). The Units will separate,
and the Common Stock and Warrants that make up the Units will trade only as
separate securities, one year after the date of this Prospectus or on such
earlier date as determined by the Underwriter (the "Separation Date"). Each
Warrant entitles the holder to purchase one share of Common Stock at a price of
$6.00 per share. The Warrants are exercisable at any time beginning on the
Separation Date unless previously redeemed, until the fifth anniversary of this
Prospectus, subject to certain conditions. The Company may redeem the Warrants,
in whole or in part, on or after the date 15 months from the date of this
Prospectus upon at least thirty days' prior written notice to the registered
holders thereof, at a price of $.10 per Warrant, provided that (i) the last
sales price of the Common Stock as reported on the American Stock Exchange has
been at least $9.00 for at least 20 consecutive trading days ending within ten
days of the date of the notice of redemption and (ii) there is a current
registration statement covering the resale of the underlying shares of Common
Stock. Prior to this offering (the "Offering"), there has been no public market
for the Units, the Common Stock or the Warrants of the Company. It is currently
estimated that the initial public offering price will be $5.00 per Unit. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Company intends to apply for listing of the Units, the Common Stock and
the Warrants on the American Stock Exchange under the proposed symbols of "APU,"
"APX" and "APW," respectively.
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
------------------------
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>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit...................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect additional compensation payable to Janssen/Meyers
Associates, L.P., as Underwriter (the "Underwriter"), in the form of (i) a
non-accountable expense allowance equal to 3% of the gross proceeds of the
Offering, (ii) any value attributable to the Underwriter's warrants to
purchase 200,000 Units (the "Underwriter's Warrant"), exercisable over a
period of four years, commencing one year from the date hereof, at a per
Unit exercise price equal to $7.00 (140% of the initial public offering
price); and (iii) a three year consulting agreement at an overall fee of
approximately $100,000 payable at the closing of the Offering. In addition,
see "Underwriting" for information concerning indemnification arrangements
with the Underwriter and other compensation payable to the Underwriter.
(2) Before deducting estimated expenses of $ payable by the Company,
excluding the non-accountable expense allowance payable to the Underwriter.
(3) The Company has granted to the Underwriter a 45-day option to purchase up to
300,000 additional Units on the same terms and conditions as the securities
offered hereby solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company, will be $ , $ , and
$ , respectively. See "Underwriting."
------------------------
The securities are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
approval of certain legal matters by its counsel and subject to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the securities offered hereby will be made against payment on or
about , 1998, at the offices of Janssen/Meyers Associates,
L.P., 17 State Street, New York, NY 10004.
------------------------
JANSSEN/MEYERS ASSOCIATES, L.P.
The date of this Prospectus is , 1998.
<PAGE> 4
[GRAPHIC DEPICTING DEVELOPMENT OF VALSTAR(TM) AND BONEFOS(R)]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK OR THE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
MOST OF THE COMPANY'S DRUG PRODUCT CANDIDATES ARE CURRENTLY UNDERGOING
CLINICAL TRIALS. TO DATE, THE COMPANY HAS NOT COMPLETED THE DEVELOPMENT, OR
GENERATED REVENUES FROM SALES, OF ANY PRODUCTS, AND UNITED STATES FOOD AND DRUG
ADMINISTRATION AND OTHER REGULATORY APPROVALS WILL BE REQUIRED BEFORE SUCH
PRODUCTS CAN BECOME COMMERCIALLY AVAILABLE.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto. Unless otherwise
indicated, all information in this Prospectus assumes (i) no exercise of the
Underwriter's over-allotment option, and (ii) that the Company is successful in
obtaining from certain stockholders agreements to convert and the resultant
conversion of an aggregate of 3,789,683 shares of the Company's Series A, B, C
and D Convertible Preferred Stock (the "Preferred Stock"), see "Description of
Securities -- Preferred Stock," to convert such shares into an aggregate of
3,789,683 shares of Common Stock to be effective upon the closing of the
Offering (the "Preferred Stock Conversion"). All references to the "Company" or
"Anthra" herein include Anthra Pharmaceuticals, Inc. and its wholly owned United
Kingdom subsidiary, Anthra Pharmaceuticals Ltd., unless the context otherwise
requires. Unless otherwise indicated, all references to years refer to calendar
years.
THE COMPANY
Anthra Pharmaceuticals, Inc. is a specialized pharmaceutical company
engaged in managing clinical development and obtaining regulatory approval of
New Drug Applications ("NDAs") and supplemental NDAs ("sNDAs") for a portfolio
of its proprietary cancer drugs. The Company's current drug candidates are for
the treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions. At the present time, Anthra has entered
into four marketing agreements with major multinational drug companies for which
it has received certain initial payments and expects significant additional
payments in the form of milestone fees and royalty and supply payments.
In December 1997, Anthra filed an NDA for its first product, Valstar(TM)
(valrubicin, AD 32) ("Valstar(TM)"), for treatment of patients with superficial
bladder cancer whose principal current alternative is the surgical removal of
their urinary bladder. In January 1998, Anthra received priority designation
from the United States Food and Drug Administration (the "FDA") for the review
of this NDA. On June 1, 1998, the Oncologic Drugs Advisory Committee ("ODAC")
reviewed Valstar(TM), and declined to recommend approval to the FDA of
Valstar(TM) without additional analyses. On September 1, 1998, ODAC re-evaluated
Valstar(TM) and voted to recommend to the FDA approval of Valstar(TM) for
treatment of patients with BCG-refractory carcinoma in-situ with a medical
contraindication to cystectomy (the "ODAC Recommended Indication"). The Company
anticipates that the NDA for Valstar(TM) for this indication will be approved by
the FDA in 1998.
Valstar(TM) is an anthracycline with multiple cytotoxic mechanisms that was
discovered at the Dana-Farber Cancer Institute, Harvard University Medical
School ("Dana-Farber"). Valstar(TM) has been shown to have significant activity
against a variety of tumor cell lines and is not associated with significant
contact toxicity, thereby making it an ideal choice for regional chemotherapy.
The Company's pivotal clinical studies, have demonstrated a complete response
rate of 18% (which rate was supported by the FDA) in a group of 90 patients with
bladder cancer who had not responded satisfactorily to extensive pre-treatment
with Bacillus Calmette Guerin ("BCG"), the accepted first line treatment for
superficial bladder cancer. There are currently no drugs approved in the United
States or Europe for second-line treatment of bladder cancer following BCG
therapy. For these patients, surgical removal of the bladder is the only
approved definitive form of therapy. Importantly, 35% of the patients in the
Company's pivotal clinical studies retained their bladder up to 48 months
following study entry. Anthra, consistent with its multiple disease indication
strategy, is developing Valstar(TM) for three additional indications. One Phase
III program is directed at patients with papillary superficial bladder cancer,
for whom approximately 180,000 transurethral resection procedures are being
performed annually in the United States. In another Phase III program involving
patients with ovarian
3
<PAGE> 6
cancer, Valstar(TM) is being administered directly into the peritoneal cavity,
where the cancer is confined. In addition, Anthra plans to commence a Phase I
program to obtain approval for use of Valstar(TM) in treating prostate cancer.
The Company has researched the historical incidence of each of these diseases
based on publicly available information and reports prepared for the Company by
MedProbe, Inc. ("MedProbe"), including a report summarizing the results of a
survey of 1.5% (124) of office and hospital based urologists reported to be
members of the American Medical Association ("AMA"). Although precise patient
data is not published and can vary significantly from year to year, based on the
foregoing research and certain assumptions made by the Company, including the
estimated cost of treating each of the estimated number of patients with
Valstar(TM), the Company estimates that the potential market for Valstar(TM) in
the United States could approximate nearly $600 million per annum, see
"Business -- Products and Markets -- Valstar(TM): Market," and that foreign
markets will provide a significant additional opportunity for sales of
Valstar(TM). No assurance can be given by the Company that this estimated market
for Valstar(TM) will be achieved.
A United States subsidiary of Medeva plc (collectively with Medeva plc,
"Medeva") has committed up to $26.2 million (of which $10.1 million has been
paid to date) and the payment of future royalties for the right to market and
sell Valstar(TM) in the United States. Anthra currently has similar arrangements
for Valstar(TM) with Nycomed Pharma AS ("Nycomed"), and Almirall Prodesfarma,
S.A. ("Almirall"), with respect to marketing and sales rights in Europe. In
total, Anthra has entered into agreements for Valstar(TM) providing potential
equity investment, licensing and development fees and milestone payments of up
to $42.9 million (of which $24.4 million has been paid to date), plus additional
royalty and supply payments.
In accordance with the Company's corporate development strategy, Anthra
identified Bonefos(R), a product for the treatment of hypercalcemia and lytic
bone disease associated with breast and lung cancer and owned by Schering AG,
Germany, the Company's largest pharmaceutical shareholder. Bonefos(R) has been
on the market in Europe and the rest of the world since 1985, with worldwide
sales of approximately $150 million in 1997. In July 1998, Anthra entered into
an Option Agreement (the "Bonefos Option Agreement") with Schering AG, Germany's
affiliates, Berlex Laboratories, Inc. ("Berlex") and Leiras Oy, to acquire the
exclusive United States development and marketing rights to Bonefos(R) for the
hypercalcemia and lytic bone disease indications, for payments aggregating $3.75
million, including a nonrefundable $250,000 payment under a prior term sheet. In
consideration of the Company's nonrefundable payment of $200,000 (also included
in the $3.75 million), the Bonefos Option Agreement grants the Company the
option to enter into a development and commercialization agreement with Berlex
and Leiras Oy and a manufacturing agreement with Leiras Oy, both of which have
been fully negotiated (collectively, the "Bonefos Agreements"). The Company
intends to exercise this option prior to the expiration of the option on
September 30, 1998, by making an additional nonrefundable $800,000 payment to
Leiras Oy. Following the execution of the Bonefos Agreements in conjunction with
the Company's exercise of its option under the Bonefos Option Agreement, the
Company plans to conduct Phase III trials in the United States for Bonefos(R)
for the hypercalcemia and lytic bone disease indications. The Bonefos Agreements
provide that, upon FDA approval of an NDA for Bonefos(R), Berlex will have the
option to acquire from the Company the exclusive right to market Bonefos(R) in
the United States for the hypercalcemia and lytic bone disease indications for
payments of up to $21 million, plus future royalties. The Company has researched
the historical incidence of hypercalcemia and the types of lytic bone disease
that Bonefos(R) treats based on publicly available information. Although precise
patient data is not published and can vary significantly from year to year,
based on the foregoing research and certain assumptions made by the Company,
including the estimated costs of utilizing Bonefos(R) for the treatment of these
maladies using each of the estimated number of patients, the Company estimates
that the potential market for Bonefos(R) in the United States could approximate
nearly $900 million per annum. See "Business -- Products and
Markets -- Bonefos(R): Market." No assurance can be given by the Company that
this estimated market for Bonefos(R) will be achieved.
Anthra believes that its strategy and accomplishments have positioned it to
become a recognized platform for the clinical substantiation and regulatory
approval of cancer drugs capable of treating multiple disease indications. The
Company is currently assessing and evaluating additional cancer-related late
stage candidates for acquisition, although no definitive agreements have been
executed. Management believes that focused, cost effective development increases
the likelihood of successful clinical development and regulatory approval.
Indicative of this strategy has been the Company's success in filing an NDA for
Valstar(TM) at a total cost of less than $20 million. According to Parexel's
Pharmaceutical Statistical Sourcebook (1997) ("PPSS"), in the
4
<PAGE> 7
United States, the cost of developing an approved new drug has been estimated to
be between $304 million and $608 million.
The Company currently manages its clinical development program for the
United States from Princeton, New Jersey, and its program for Europe from
Princes Risborough, England through Anthra Pharmaceuticals Ltd., its wholly
owned United Kingdom subsidiary ("Anthra UK"). The Company further anticipates
that it may manage the manufacturing, supply, development and distribution of
Valstar(TM) and Bonefos(R) from Switzerland through one or more wholly owned
Swiss subsidiaries, which would hold substantially all of the Company's rights
to Valstar(TM) and Bonefos(R).
The Company was incorporated in Delaware on June 25, 1985. The Company's
principal executive offices are located at 103 Carnegie Center, Suite 102,
Princeton, New Jersey 08540 and its telephone number is (609) 514-1060.
5
<PAGE> 8
THE OFFERING
Securities offered.............. 2,000,000 Units, each Unit consisting of one
share of Common Stock and one Warrant to
purchase one share of Common Stock. The
Common Stock and the Warrants that make up
the Units will trade only as separate
securities one year after the date of this
Prospectus. See "Description of Securities."
Common Stock to be outstanding
after the Offering.............. 6,855,183 shares(1)
Warrants to be outstanding after
the Offering.................... 2,000,000(2)
Terms of Warrants............... Each Warrant entitles the holder to purchase
one share of Common Stock at a price of $6.00
per share. The Warrants are exercisable at
any time beginning on the Separation Date
unless previously redeemed, until the fifth
anniversary of this Prospectus, subject to
certain conditions. The Company may redeem
the Warrants, in whole or in part, on or
after the date 15 months from the date of
this Prospectus upon at least thirty days'
prior written notice to the registered
holders thereof, at a price of $.10 per
Warrant, provided that (i) the last sales
price of the Common Stock as reported on the
American Stock Exchange has been at least
$9.00 for at least 20 consecutive trading
days ending within ten days of the date of
the notice of redemption and (ii) there is a
current registration statement covering the
resale of the underlying shares of Common
Stock.
Use of proceeds................. Progress payments for the acquisition of
Bonefos(R), for development of products, and
for general corporate purposes, including
potential additional product acquisitions and
purchases of product inventory. See "Use of
Proceeds."
Proposed American Stock Exchange
symbols....................... Units -- "APU" (until the Separation Date)
Common Stock -- "APX" (on and after the
Separation Date)
Warrants -- "APW" (on and after the
Separation Date)
Risk Factors.................... This Offering involves a high degree of risk.
See "Risk Factors."
- ---------------
(1) Based on shares of Common Stock outstanding at June 30, 1998 and assuming
the Company is successful in obtaining from all of the holders of Preferred
Stock agreements to convert their shares and the resultant conversion of an
aggregate of 3,789,683 shares of Preferred Stock into an aggregate of
3,789,683 shares of Common Stock effective upon the closing of the Offering.
Does not include (a) 1,535,487 shares of Common Stock issuable upon exercise
of stock options outstanding at June 30, 1998, with a weighted average
exercise price of $3.01 per share, of which options to purchase 509,757
shares of Common Stock were then exercisable (see "Capitalization" and
"Management") (options to purchase 199,532 shares of Common Stock have been
cancelled after June 30, 1998), (b) certain stock options to purchase Common
Stock or Series D Convertible Preferred Stock which may be granted to
Nycomed pursuant to the Nycomed Agreement (see "Business -- Products and
Market -- Valstar(TM): Licensing Agreements"), (c) 2,000,000 shares of
Common Stock issuable upon exercise of the Warrants, and (d) 400,000 shares
of Common Stock issuable on the exercise of the Units underlying the
Underwriter's Warrant and the Warrants underlying such Units.
(2) Does not include 200,000 Warrants issuable upon the exercise of the Units
underlying the Underwriter's Warrant.
6
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
-------------------------------------------------------
1994 1995 1996 1997 1998
----------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ -- $ -- $ 2,171 $ 1,688 $ --
Total operating expenses...................... 2,489 2,712 4,172 7,292 11,106
Other income (expense)........................ 37 94 111 139 359
------- ------- ------- ------- --------
Net loss...................................... $(2,452) $(2,618) $(1,890) $(5,465) $(10,747)
======= ======= ======= ======= ========
Net loss allocable to common stockholders..... $(2,874) $(3,271) $(2,543) $(6,118) $(11,400)
======= ======= ======= ======= ========
Basic and diluted net loss per share allocable
to common stockholders(1)................... $ (4.02) $ (4.24) $ (3.01) $ (5.79) $ (10.70)
Shares used in computing basic and diluted net
loss per share allocable to common
stockholders(1)............................. 716 771 844 1,057 1,066
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
-------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,912 $ 2,912 $ 11,042
Working capital...................................... 635 635 9,316
Total assets......................................... 4,100 4,100 11,348
Contingent stock obligation(4)....................... 8,000 8,000 8,000
Mandatorily redeemable convertible preferred stock... 11,623 -- --
Convertible preferred stock.......................... 6 -- --
Deficit accumulated during the development stage..... (25,616) (25,616) (25,616)
Total stockholders' equity (deficit)................. (17,849) (6,226) 1,574
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
(2) The Company is currently attempting to obtain agreements from all of the
holders of Preferred Stock to convert all of their shares of Preferred Stock
into the same number of shares of Common Stock upon the closing of the
Offering. The amounts presented assume that the Company obtains the
conversion agreements from each holder of Preferred Stock and the resultant
conversion of all issued and outstanding shares of Preferred Stock into
3,789,683 shares of Common Stock effective upon the closing of the Offering.
If the Company does not obtain such conversion agreements, the pro forma as
adjusted stockholders' equity (deficit) would be $(10,049,000), convertible
preferred stock would be $6,000 and mandatorily redeemable convertible
preferred stock would be $11,623,000.
(3) As adjusted to give effect to the sale of the 2,000,000 Units by the Company
offered hereby at an assumed initial public offering price of $5.00 per
Unit, less underwriting discounts and commissions and estimated offering
expenses, and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
(4) See Note 5 of Notes to Consolidated Financial Statements.
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RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the securities offered hereby. The Company cautions prospective investors that
the following list of risk factors may not be exhaustive.
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the products which the
Company expects to offer, anticipated research and development expenditures and
regulatory reform, the intent, belief or current expectations of the Company,
its Directors or its officers, primarily with respect to the future operating
performance of the Company, other statements contained herein regarding
performance of the Company, and other statements contained herein regarding
matters that are not historical facts, are forward-looking statements. Because
such statements include risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
These statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its Directors or its officers with respect to, among other things: (i) whether
the Company will receive, and the timing of, regulatory approvals or clearances
to market Valstar(TM) and Bonefos(R) and any other potential products; (ii) the
results of current and future clinical trials; and (iii) the time and expenses
associated with the regulatory approval process for products. The success of the
Company's business operations is in turn dependent on factors such as the
receipt and timing of regulatory approvals or clearances for potential products,
the effectiveness of the Company's marketing strategies to market its current
and any future products, the Company's ability to enter into agreements for the
manufacture of its products on a commercial scale, the appeal of the Company's
mix of products, the Company's success at entering into and collaborating with
others to conduct effective strategic alliances and joint ventures, general
competitive conditions within the biotechnology and pharmaceutical industry, and
general economic conditions. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
History of Losses; Accumulated Deficit and Anticipated Future Losses. To
date, the Company has been engaged primarily in clinical research and
development activities and has generated revenues only recently. At June 30,
1998, the Company had an accumulated deficit of $25.6 million since inception
and losses are expected to continue through fiscal year 1999. The Company will
be required to conduct substantial clinical research and development for all of
its current and proposed products, which activities are expected to result in
operating losses for the foreseeable future. In addition, to the extent the
Company relies upon others for commercialization activities, the Company's
ability to achieve profitability will be dependent upon the success of such
third parties. The extent and duration of future losses is highly uncertain, and
there can be no assurance that the Company will be able to achieve profitability
on a sustained basis, if at all.
Future Capital Needs and Commitments; Uncertainty of Additional
Funding. The Company anticipates that its existing resources, including the net
proceeds of the Offering and contingent funding from Medeva, Berlex (assuming
the exercise by the Company of its option under the Bonefos Option Agreement to
enter into the Bonefos Agreements), Nycomed and Almirall (collectively, the
"Collaborative Partners"), will be sufficient to fund the Company's operating
expenses and capital requirements through fiscal 1999. There can be no
assurance, however, that the results of research and development activities,
potential relationships with strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the regulatory approval process, and other factors, will
not result in the exhaustion of the Company's resources before such time. The
Company will require substantial funds in addition to the proceeds of the
Offering to conduct research and development activities, clinical trials, and
apply for regulatory approvals for any potential products in addition to
Valstar(TM) and Bonefos(R). If the Company engages directly in such activities
or in the event scheduled payments are not made by Collaborative Partners or any
related agreements are terminated, such events could materially and adversely
affect the Company's business, financial condition and results of operations.
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The Independent Auditors' Report covering the June 30, 1998 consolidated
financial statements included elsewhere herein, contains an explanatory
paragraph which states that the Company's recurring losses from operations, net
capital deficiency and insufficient working capital raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
The Company may seek additional funding through collaborative arrangements
and public or private financings, including equity financings. There can be no
assurance that such collaborative arrangements or additional financing will be
available on acceptable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders may result. If
adequate funds are not available, the Company may be required: (i) to delay,
reduce the scope of or eliminate one or more of its development programs or
forfeit its rights to licensed products or technologies; (ii) to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would otherwise seek to develop or commercialize
itself; or (iii) to license the rights to such products on terms that are less
favorable to the Company than might otherwise be available. Any of the foregoing
developments could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Limited History of Product Development. The Company has no products
approved for sale. The Company has filed an NDA with the FDA for Valstar(TM) for
treatment of refractory carcinoma in-situ of the bladder, and has clinical
trials in progress or planned for three other disease indications for
Valstar(TM). Although ODAC has recommended to the FDA that it approve
Valstar(TM) for the ODAC Recommended Indication, such recommendation is not
binding on the FDA. In addition, there can be no assurance that the FDA will
follow ODAC's recommendation with respect to the ODAC Recommended Indication or
that the FDA will grant the Company approval with respect to the ODAC
Recommended Indication, or that any of the clinical trials in progress will
either have successful results or lead to approved sNDAs for other indications.
Failure to obtain such approvals would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has entered into the Bonefos Option Agreement to obtain
development and marketing rights for the United States market for a second
product, Bonefos(R), for the hypercalcemia and lytic bone disease indications.
The Bonefos Option Agreement grants the Company the option to enter into the
Bonefos Agreements, which the Company intends to exercise by making a
non-refundable $800,000 payment to Leiras Oy prior to the expiration of the
option on September 30, 1998. Bonefos(R) is the subject of an ongoing clinical
trial with respect to one indication. The Company plans to commence clinical
trials for a second indication for Bonefos(R) upon the execution of the Bonefos
Agreements in conjunction with the exercise by the Company of its option under
the Bonefos Option Agreement. However, there can be no assurance that either of
the clinical trials will be completed with successful results or that such
results will lead to the successful filing and approval of this product for any
indication. There also can be no assurance that the Company can meet certain
financial covenants contained in the Bonefos Agreements which if not met, allow
for termination of such agreements.
Before obtaining regulatory approval for commercial sale, a product
candidate must be shown through preclinical and clinical trials that it is safe
and effective for use in each target indication. The results from preclinical
and early clinical trials may not be predictive of results that will be obtained
in large-scale clinical trials. There can be no assurance that clinical trials
of the Company's product candidates will demonstrate sufficient safety and
efficacy to obtain the requisite regulatory approvals or will result in
marketable products.
While the Company has submitted an NDA to the FDA with respect to
Valstar(TM) for the treatment of refractory carcinoma in-situ of the bladder,
results obtained with respect to the clinical trials for this indication for
Valstar(TM) may not be representative of results of clinical trials for other
indications. The pivotal Phase III studies of Valstar(TM) for other indications
seek efficacy data, as well as additional safety data, and will require
substantial time and significant funding. There can be no assurance that
clinical studies for additional indications for Valstar(TM) currently under
development will be completed successfully within any specified time
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<PAGE> 12
period, if at all. Further, there can also be no assurance that such testing
will show Valstar(TM) to be safe or effective for these indications. There can
be no assurance that the Company will not encounter problems in clinical trials
that will cause the Company to delay or suspend clinical trials. If the
Company's product candidates are not shown to be safe and effective in clinical
trials, there would be a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products and
Markets."
Short-Term Dependence on Valstar(TM). The Company filed an NDA for
approval to market Valstar(TM) for the treatment of patients with carcinoma
in-situ of the bladder, whose principal current alternative is surgical removal
of their urinary bladder. Two additional indications are being investigated in
two Phase III trials, and the Company anticipates that it will investigate a
fourth indication in a Phase I trial. Valstar(TM) has not been approved for
marketing by the FDA or any foreign regulatory agency for any indication, and
trials to date have involved a limited number of patients. There can be no
assurance that marketing approval for Valstar(TM) for any indication will be
obtained. If Valstar(TM) is approved for marketing, there can be no assurance
that it will gain market acceptance or that the marketing efforts necessary to
gain any such acceptance will prove effective or not cost more than the benefit
gained thereby. In addition, competition to Valstar(TM) may develop from other
new and existing products. The failure of Valstar(TM) to be approved for
marketing or to gain market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations. While the
Company has executed the Bonefos Option Agreement regarding the acquisition of
development and marketing rights for the United States market for Bonefos(R) for
the hypercalcemia and lytic bone disease indications, and intends to exercise
its option thereunder to enter into the Bonefos Agreements, there can be no
assurance, that regulatory approval will be obtained for Bonefos(R) for such
indications in the United States or that Bonefos(R) can be successfully
commercialized for such indications in the United States.
The number of patients in the United States with refractory carcinoma
in-situ of the bladder is limited and may be as few as 5,000 patients per annum.
In order to increase the number of indications for which Valstar(TM) may be
used, the Company must (i) successfully complete large clinical trials
demonstrating that drug activity is sufficient in each indication, (ii) file
sNDAs for and obtain marketing clearance from the FDA for each additional
indication, following approval of the NDA, (iii) make similar filings with and
obtain similar approvals from foreign regulatory agencies, and (iv) provide
support for the successful market launch and penetration of the product. There
can be no assurance that the Company will successfully complete the required
clinical trials and receive approvals for the additional indications on a timely
basis, if at all, or successfully market the product. Such an inability would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Government Regulation."
Uncertainties Related to Clinical Trials. The Company has limited
experience in conducting multiple clinical trials. Before obtaining regulatory
approval for the commercial sale of its products and their respective
indications, the Company is required to demonstrate through preclinical studies
and clinical trials that the products are safe and effective for use in each
target indication. The results from preclinical studies and early clinical
trials may not predict the results that will be obtained in large-scale testing,
and there can be no assurance that the clinical trials conducted by the Company
or its partners will demonstrate sufficient safety and efficacy to obtain
required regulatory approvals or will result in marketable products. In
addition, clinical trials are often conducted with patients having the most
advanced stage of disease. During the course of treatment, these patients may
die or suffer other adverse medical effects for reasons that are not related to
the pharmaceutical agent being tested, but which can nevertheless affect
clinical trial results. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in advanced clinical
trials, even after achieving promising results in earlier trials.
The completion of clinical trials of the Company's product candidates could
be delayed or terminated by many factors and there can be no assurance that such
delays or terminations will not occur. One such factor is the rate of enrollment
of patients, which generally varies throughout the course of a clinical trial
and which depends upon the size of the patient population, the number of
clinical trial sites, the proximity of patients to clinical trial sites, the
eligibility criteria for the clinical trial, and the existence of competitive
clinical trials. The Company cannot control the rate at which patients present
themselves for enrollment, and there can be no
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assurance that the rate of patient enrollment will be consistent with the
Company's expectations or be sufficient to enable clinical trials of the
Company's product candidates to be completed in a timely manner. Any delays in,
or termination of, the clinical trials of any of the Company's product
candidates could have a material adverse effect on the Company's business,
financial condition and results of operations.
There is also the possibility that unacceptable side effects will be
discovered during preclinical or clinical testing of the Company's products.
Even after approval for marketing, a product may later be shown to be
ineffective or to have unacceptable side effects not discovered during testing,
requiring limitations on its use or withdrawal from the market.
Dependence on Licensees and Other Third Parties. The Company does not
intend to market any of its product candidates directly in the foreseeable
future. The Company has granted the right to commercialization and marketing
activities relating to Valstar(TM) to various licensees with respect to certain
territories. See "Business -- Products and Markets -- Valstar(TM): Licensing
Agreements." Pursuant to the Company's agreement with Medeva covering the United
States, the Company received an initial non-refundable payment of $8 million and
an additional $2.1 million payment for having manufactured certain batches of
Valstar(TM) acceptable to the FDA in a pre-approval inspection. The Company will
not receive the additional payments aggregating up to $16.0 million unless
certain other milestones are achieved. Under the Company's agreement with
Nycomed covering, among other territories, certain parts of Western and Eastern
Europe and Russia, Nycomed made a $4.5 million equity investment in the Company,
but is only obligated to make certain additional payments, aggregating up to $2
million, upon the attainment by Anthra of certain milestones. The Company will
also be obligated to issue certain options to purchase additional equity in the
Company upon the achievement of certain milestones. Pursuant to the Company's
agreement with Almirall covering Spain and Portugal, Anthra received an initial
licensing payment of $200,000 and an equity investment of approximately
$750,000, and may receive additional payments aggregating up to $400,000 if
certain milestones are achieved. The Company is also entitled to royalty and/or
supply payments under the Medeva, Nycomed and Almirall agreements and, although
each of such agreements has a minimum term of 10 years, the commencement date
for such payments under each agreement will remain undetermined until
Valstar(TM) is approved for sale in the relevant jurisdiction. Accordingly, the
Company is substantially dependent on these licensees for the funding necessary
to support, and the commercial success of, this product candidate. In the event
that any of the licensees subsequently terminates its agreement with the Company
or otherwise fails to conduct its collaborative activities successfully and in a
timely manner, the commercialization of the licensed Valstar(TM) product
candidate could be delayed. Any such delay could have a material adverse effect
on the Company's business, financial condition and results of operations.
Furthermore, if the Company exercises its option under the Bonefos Option
Agreement to enter into the Bonefos Agreements as is its intention, and Berlex
should exercise its option to acquire the United States marketing rights for
Bonefos(R) for the hypercalcemia and lytic bone disease indications, the Company
would be dependent upon the marketing efforts of Berlex with respect thereto.
The Company has no experience in sales, marketing or distribution and is
relying on its licensing arrangements pursuant to which third parties will sell,
market and distribute its products. The Company is currently dependent to a
significant extent on corporate partners, licensees and other entities for
manufacturing and marketing of its products. If the Company engages directly in
manufacturing or marketing, the Company will require substantial additional
funds and personnel and will be required to comply with extensive regulations
applicable to such activities. There can be no assurance that the Company will
be able to develop or contract for these capacities when required in connection
with the Company's business. Any revenues received by the Company will depend
upon the efforts of third parties, and there can be no assurance that such
efforts will be successful. See "Business -- Products and Markets."
The Company intends to enter into additional corporate alliances to develop
and commercialize products. The Company may grant to its collaborative partners
rights to commercialize any products developed under or covered by these
collaborative agreements. The amount and timing of resources devoted to these
activities generally will be controlled by each such individual partner. There
can be no assurance that such corporate partners will successfully commercialize
any such products or will not pursue alternative technologies or develop
competitive products for the treatment of the diseases targeted by the Company's
programs.
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There can be no assurance that the Company will be successful in
establishing any additional collaborative arrangements, that products will be
successfully commercialized under any collaborative arrangement or that the
Company will derive any revenues from such arrangements. In addition, the
Company's strategy involves entering into multiple, concurrent strategic
alliances to pursue commercialization of its products. There can be no assurance
that the Company will be able to manage simultaneous alliances successfully.
With respect to existing and potential future strategic alliances and
collaborative arrangements, the Company will be dependent upon the expertise and
dedication of sufficient resources by these outside parties to manufacture
and/or market products. Should a strategic alliance partner or collaborative
partner fail to commercialize a product to which it has rights, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process. The research, development, preclinical and clinical trials,
manufacturing, labeling, and marketing related to the Company's products are
subject to an extensive regulatory approval process by the FDA and other
regulatory agencies in the United States and abroad. The process of obtaining
FDA and other required regulatory approvals for drug and biologic products,
including required preclinical and clinical testing, is lengthy, expensive and
uncertain. There can be no assurance that, even after such time and
expenditures, the Company will be able to obtain necessary regulatory approvals
for clinical testing or for the manufacturing or marketing of any products or
that the approved labeling will be sufficient for favorable marketing and
promotional activities. The Company may encounter significant delays or
excessive costs in its efforts to secure necessary approvals or licenses. Even
if regulatory clearance is obtained, a marketed product is subject to continual
review, and later discovery of previously unknown defects or failure to comply
with the applicable regulatory requirements may result in restrictions on a
product's marketing or withdrawal of the product from the market as well as
possible civil or criminal sanctions.
Satisfying regulatory requirements, which includes demonstrating to the
satisfaction of appropriate regulatory authorities, such as the FDA, that the
relevant product is both safe and effective, typically takes several years or
more depending upon the type, complexity and novelty of the product and requires
the expenditure of substantial resources. There can be no assurance that the
Company will not encounter problems in clinical trials which would cause the
Company or the FDA or other regulatory body to delay or suspend clinical trials.
Any such delay or suspension could have a material adverse effect on the
Company's business, financial condition and results of operations. Even after
approval, marketed products are subject to continuing FDA review, and they can
be withdrawn from the market, or new limitations placed on their labeling,
marketing, distribution, manufacture, or use, if new side effects are discovered
or if the products are shown to be less effective than previously believed. See
"Business -- Products and Markets" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
As with all specialized pharmaceutical companies, biotechnology companies,
large pharmaceutical companies and drug delivery companies, there can be no
assurance that FDA or other regulatory approvals for any of Anthra's
pharmaceutical products will be granted on a timely basis, if at all. The FDA
and comparable agencies in foreign countries impose substantial requirements on
the introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing procedures, sample testing and other costly and
time-consuming compliance procedures. For example, clinical trials subject to
FDA review are rigorously regulated and must meet requirements for FDA review
and oversight, and requirements under Good Clinical Practice guidelines. A new
drug may not be marketed in the United States until it has been approved by the
FDA, or marketed in foreign countries until it has been approved by the
appropriate regulatory authorities for such countries. There can be no assurance
that the Company will not encounter delays or rejections or that the FDA or
other applicable regulatory agency will not make policy changes during the
period of product development and regulatory review of each submitted NDA or
sNDA, or other appropriate documentation. A delay in obtaining or failure to
obtain such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Even if regulatory
approval is obtained, the labeling would be limited as to the indicated uses for
which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. If marketing approval is granted, the
Company would be
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required to comply with FDA or other applicable regulatory agency requirements
for manufacturing (including compliance with current Good Manufacturing Practice
("cGMP") requirements), labeling, advertising, record keeping and reporting of
adverse experiences, and other information. In addition, the Company would be
required to comply with Federal and state anti-kickback and other health care
fraud and abuse laws, and their foreign law equivalents, that pertain to the
marketing of pharmaceuticals. Failure to comply with regulatory requirements and
other factors could subject Anthra to regulatory or judicial enforcement
actions, including, but not limited to, product recalls or seizures,
injunctions, withdrawals of product from the market, civil penalties, criminal
prosecution, and withdrawals of existing approvals, as well as enhanced product
liability exposure, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
The Company has obtained from the FDA a designation for Valstar(TM) as an
"orphan drug" ("Orphan Drug"), under the provisions of the Orphan Drug Act of
1983, as amended (the "Orphan Drug Act"), for the treatment of carcinoma in-situ
of the bladder. Although Orphan Drug status may provide an applicant exclusive
marketing rights in the United States for a drug for a designated indication for
seven years following marketing approval, in order to obtain such benefits, the
applicant must be the sponsor of the first NDA approved for that drug and
indication. In addition, Orphan Drug exclusivity does not prohibit the FDA from
approving the same drug manufactured by another sponsor if it is labeled for a
different indication (even if it can be used for the same indication) or if it
is clinically superior to the Orphan Drug in any respect. Moreover, amendment of
the Orphan Drug Act by the United States Congress and reinterpretation by the
FDA are frequently discussed. Therefore, there can be no assurance as to the
precise scope of protection that may be afforded by Orphan Drug status in the
future, or that the current level of exclusivity will remain. See
"Business -- Government Regulation."
Competition. The pharmaceutical and biopharmaceutical industries are
intensely competitive and competition from other pharmaceutical companies,
biotechnology companies and other research and academic institutions is expected
to increase. Many of these companies have substantially greater financial and
other resources and research and development capabilities than the Company and
have substantially greater experience in undertaking preclinical and clinical
testing of products, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products. The Company is aware of other companies
engaged in the development of anthracycline drugs as chemotherapeutic agents for
various disease indications, including Pharmacia-Upjohn, Aronex, Sequus, Nexstar
and Liposome Company, and a number of other companies and academic institutions
are pursuing anthracycline drug research and are testing other anthracycline
drugs. Valstar(TM) may compete for certain uses with numerous other
anthracycline drug products in development by others. In addition to these
companies and institutions involved in the development of anthraycycline drugs,
many other companies have developed products which may compete with Valstar(TM).
These companies include Zeneca, Bristol-Myers Squibb, American Home Products,
SmithKline Beecham, Eli Lilly, Roche, Schering Plough, Bioniche Inc., Mentor and
Takeida-Abbott, all of which develop or commercialize anti-cancer therapies.
With respect to the treatment of prostate cancer, Anthra also faces competition
from companies developing radioactive seed implantation therapies, including
Amersham/Mediphysics, North American Scientific, Theragenics, Imagyn Medical
Technologies and International Isotopes. Furthermore, companies also exist that
compete with Bonefos(R) by developing other bisphosphonates for the treatment of
hypercalcemia and lytic bone disease. These companies include Proctor & Gamble,
Sanofi, Novartis, Merck and MGI Pharmaceutical. There can be no assurance that
the Company will develop products that are as effective as or achieve greater
market acceptance than competitive products, or that the Company's competitors
will not succeed in developing products and technologies either that are as
effective as those being developed by the Company or that would render the
Company's products and technologies less competitive or obsolete.
Dependence on Patents and Other Proprietary Rights, Uncertainty of Patent
Position and Proprietary Rights. Valstar(TM) is no longer protected by the
rights afforded to the Company by patent protection as a new molecular entity
("NME"). The FDA has designated Valstar(TM) as an Orphan Drug for carcinoma
in-situ, and the Company expects to apply for Orphan Drug designation for
Valstar(TM) in other disease indications. Orphan Drug designation grants a
company market exclusivity in the indication for a period of seven years after
FDA approval if it receives the first approval of the Orphan Drug for that
indication. If another sponsor
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receives the first approval, this would prevent the Company from receiving
approval for seven years. There can be no assurance the Company will be granted
Orphan Drug status for any additional product or indication or that such status
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company or that another
sponsor will not receive Orphan Drug exclusivity first that would block the
Company's ability to obtain its own approval. See "Business -- Government
Regulation."
Bonefos(R) is the subject of several United States patents and patent
applications with expiration dates commencing in 2010 and ending in 2014. The
FDA has designated Bonefos(R) as an Orphan Drug for the treatment of osteolysis
(hypercalcemia). There can be no assurance that Bonefos(R) will be granted
Orphan Drug status for the treatment of lytic bone disease or that such status
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company.
Furthermore, the enactment of the legislation implementing the General
Agreement on Trade and Tariffs resulted in certain changes to United States
patent laws effective June 8, 1995. More notably, the term of patent protection
for patent applications filed on or after June 7, 1995 is no longer a period of
17 years from the date of grant, but will commence on the date of issuance and
terminate 20 years from the earlier effective filing date of the application.
Because the time from filing to issuance of an NME patent application is often
more than three years, a 20 year term from the effective date of filing may
result in a substantially shortened term of patent protection, which may
adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage for future products, the Company's business,
financial condition and results of operations could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from a collaborative partner is based on the existence of a valid patent.
The Company's potential products may infringe on patents that have been or
may be granted to competitors, universities or others. The Company is aware of
third party United States patents that contain issued claims that may cover the
proposed formulation for Bonefos(R) and the sale of Bonefos(R) for the treatment
of osteolysis or the modulation of hypercalcemia due to malignancy. If any
technologies, applications, patents or proprietary rights of others conflict
with the Company's activities or patents, the Company may be required to curtail
certain of its operations or seek to license disputed rights from others,
including the right to manufacture and sell Bonefos(R). There can be no
assurance that any such license will be available to the Company on commercially
reasonable terms, if at all. Any such conflict involving the Company, Berlex,
Leiras Oy or their respective affiliates may involve proceedings with patent
regulators or litigation seeking monetary damages and seeking to enjoin the
Company's commercial activities. The Company could incur substantial costs and
diversion of management resources in defending patent infringement claims,
obtaining patent licenses, engaging in interference proceedings or other
challenges to the related patent rights or intellectual property rights made by
others, or in bringing such proceedings or enforcing any patent rights against
others. Some of the Company's competitors have, or are affiliated with companies
having, substantially greater resources than the Company, and such competitors
may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than the Company. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on the Company's ability to compete in the
marketplace pending resolution of the disputed matters. The Company's inability
to obtain necessary licenses or its involvement in disputes or proceedings
concerning patent rights could have a material adverse effect on the business,
financial condition and results of operations of the Company.
As the biotechnology industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons or entities could bring
legal actions against the Company claiming damages and seeking to enjoin
clinical testing, manufacturing and marketing of the affected products. Any such
litigation could result in substantial cost to the Company and a diversion of
effort by the Company's management and technical personnel. If any such actions
are successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected products. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. Failure to obtain needed
patents, licenses or
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proprietary information held by others may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
if the Company becomes involved in litigation, it could consume a substantial
portion of the Company's time and resources.
The Company also relies on trade secret protection for its confidential and
proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its rights to unpatented trade secrets. The
Company requires its consultants and advisors to execute a confidentiality
agreement upon the commencement of a consulting relationship with the Company,
and requires each of its key employees to enter into a similar confidentiality
agreement. Such agreements generally provide that all trade secrets and
inventions conceived by the individual and all confidential information
developed or made known to the individual during the term of the relationship
shall be the exclusive property of the Company and shall be kept confidential
and not disclosed to third parties except in specified circumstances. There can
be no assurance, however, that these agreements will provide meaningful
protection for the Company's proprietary information in the event of
unauthorized use or disclosure of such information.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's proposed projects, disputes may arise as to the proprietary rights to
such information which may not be resolved in favor of the Company. Certain of
the Company's consultants are employed by or have consulting agreements with
third parties and any inventions discovered by any such individual generally
will not become property of the Company. The occurrence of one or more of the
foregoing events may have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Key Personnel and Consultants. The Company is dependent on
certain of its executive officers. Mr. Michael C. Walker, the Company's
co-founder, President and Chief Executive Officer, and Mr. Richard Onyett, the
Company's Senior Vice President -- Corporate Development, share management
responsibility for corporate operations, business and market development,
direction of clinical programs and contract negotiation. In addition, the
Company is highly dependent on the principal members of its scientific and
management staff, and the loss of any of their services might significantly
delay or prevent the achievement of research, development, or business
objectives. The Company does not maintain key-man life insurance with respect to
any of its employees; however, the Company will be required to use its best
efforts to obtain key man life insurance in the amount of $2 million for one or
more of the Company's principal executive officers, in accordance with the terms
of the Underwriting Agreement. There can be no assurance that the Company will
be able to obtain such insurance on commercially reasonable terms, if at all.
The Company does not have an employment agreement with any member of management
other than Michael C. Walker. See "Management -- Employment Agreements." The
loss of the services of any of these key personnel or other key employees of the
Company could have a material adverse effect on the Company. Competition for
qualified employees among pharmaceutical and biotechnology companies is intense,
and the loss of certain of such persons, or an inability to attract, retain and
motivate additional highly skilled employees, could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to retain its existing
personnel or attract and retain additional qualified employees. In addition, the
Company may experience increased compensation costs in order to compete for
skilled employees. See "Management."
The Company is also dependent, in part, upon the continued contributions of
the lead investigators of the Company's sponsored research programs. The Company
also relies on consultants and advisors, including the members of its Scientific
Advisory Board, to assist the Company in formulating its research and
development strategy. Retaining and attracting qualified personnel, consultants
and advisors is critical to the Company's success. In addition, the Company's
scientific consultants and collaborators may have commitments to or consulting
or advisory agreements with other entities that may affect their ability to
contribute to the Company or may be competitive with the Company. See
"Management."
In order to pursue its product development and marketing and sales plans,
the Company will be required to hire additional qualified scientific personnel
to perform research and development, as well as personnel with
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expertise in clinical testing, government regulation, manufacturing, and
marketing and sales. The Company faces competition for qualified individuals
from numerous pharmaceutical and biotechnology companies, universities and other
research institutions. There can be no assurance that the Company will be able
to attract and retain such individuals on acceptable terms, if at all, and the
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risk of Product Liability; Availability of Insurance. The use of the
Company's potential products in clinical trials and the marketing of any
pharmaceutical products may expose the Company to product liability claims. The
Company has obtained a level of liability insurance coverage that it deems
appropriate for its current stage of development. However, there can be no
assurance that the Company's present insurance coverage is adequate. Such
existing coverage will not be adequate as the Company further develops products,
and no assurance can be given that in the future adequate insurance coverage
will be available in sufficient amounts or at a reasonable cost. A successful
product liability claim could have a material adverse effect on the business and
financial condition of the Company.
Uncertainty Related to Health Care Reimbursement and Reform Measures. In
both United States and foreign markets, sales of the Company's proposed products
and the Company's success will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers and other organizations. The levels of
revenues and profitability of pharmaceutical companies may be affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care. Over the past decade, the cost of health care has
risen significantly, and there have been numerous proposals by legislators,
regulators and third-party health care payors to curb these costs. Some of these
proposals have involved limitations on the amount of reimbursement for certain
products. There can be no assurance that similar Federal or state, or foreign,
health care legislation will not be adopted in the future, that any products
sought to be commercialized by the Company or its collaborators will be
considered cost-effective, or that adequate third-party insurance coverage will
be available for the Company to establish and maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. Moreover, the existence or threat of cost control measures could
have an adverse effect on the willingness or ability of licensees to pursue
research and development programs related to the Company's product candidates.
The Company cannot predict the effect that private sector or governmental health
care reforms may have on its business, and there can be no assurance that any
such reforms will not have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, in both the United
States and elsewhere, sales of prescription drugs are dependent in part on the
availability of reimbursement to the consumer from third-party payors, such as
government and private insurance plans. Third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's proposed
products will be considered cost-effective or that adequate third-party
reimbursement will be available to enable the Company to maintain price levels
sufficient to realize an appropriate return on its investment in product
development. Legislation and regulations affecting the pricing of
pharmaceuticals may change before any of the Company's proposed products are
approved for marketing. Adoption of such legislation could further limit
reimbursement for medical products and services. As a result, the Company may
elect not to market future products in certain markets.
Lack of Manufacturing Experience; Reliance on Contract Manufacturers and
Suppliers. The Company does not have facilities to manufacture and produce its
compounds for preclinical, clinical or commercial purposes. Valstar(TM) has
never been manufactured for commercial purposes, and there can be no assurance
that Valstar(TM) can be manufactured at a cost or in quantities necessary to
make it commercially viable. The Company has put in place arrangements with
contract manufacturers to produce Valstar(TM). If the contract manufacturers are
unable to manufacture Valstar(TM) on acceptable terms, or encounter delays or
difficulties, the Company's preclinical and human clinical testing schedule
would be delayed, resulting in delay of the market introduction and subsequent
sales of Valstar(TM). This delay could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
Anthra's contract manufacturers must supply all necessary documentation in
support of the Company's NDA, and any sNDAs, on a
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<PAGE> 19
timely basis and must adhere to, among other requirements, cGMP enforced by the
FDA through its facilities inspection program, and such other requirements
imposed by other regulatory authorities. If these facilities cannot pass a
pre-approval plant inspection, the FDA approval of Valstar(TM) will not be
granted, and such failure to obtain approval would have a material adverse
effect on the Company's business, financial condition and results of operations.
Valstar(TM) is or has been manufactured in bulk powder form ("Valstar(TM)
Drug Substance") for the Company by Sicor S.p.A., a subsidiary of Gensia Sicor
Inc., in Rho (Milan), Italy and by Omnichem S.A. ("Omnichem"), which is also
owned by a larger parent company, in Louvain-la-Neuve, Belgium. Both of these
companies are independent of one another. The Company has in place a long-term
supply agreement with Genchem Pharma Ltd., a subsidiary of Gensia Sicor Inc.,
which agreement is guaranteed by Gensia Sicor Inc. (together with Sicor S.p.A.
and Genchem Pharma Ltd., "Gensia Sicor"). Valstar(TM) is manufactured in
finished dosage form in vials ("Valstar(TM) Drug Product") by Ben Venue
Laboratories, Inc. ("Ben Venue"). Ben Venue is owned by Boeheringer Ingelheim of
Germany. The Company has no written supply agreement with Ben Venue, although
the terms and conditions of such an agreement are being negotiated. There can be
no assurance that any of these suppliers can be compelled to make Valstar(TM) as
a Valstar(TM) Drug Substance or a Valstar(TM) Drug Product available to the
Company in the required quantities. There can be no assurance that the Company
will be able to identify and contract with alternative contract manufacturers
for its Valstar(TM) Drug Substance or Valstar(TM) Drug Product requirements in
the event that these suppliers are unable or unwilling to manufacture sufficient
quantities of Valstar(TM). The Company would incur significant costs and delays
to qualify an alternative manufacturer, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's failure to meet its supply requirements pursuant to
certain of its licensing agreements could result in significant monetary
penalties being imposed on the Company. The availability and price of
Valstar(TM) may be subject to curtailment or change due to limitations that may
be imposed under governmental regulations, suppliers' allocations to meet demand
of other purchasers, interruptions in production by suppliers and market and
other events and conditions, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Products and Markets."
Bonefos(R) is manufactured by Leiras Oy of Helsinki, Finland, an affiliate
of Schering AG, Germany, for distribution in 56 countries outside of the United
States. Bonefos(R) has never been manufactured for commercial purposes for the
United States market, and there can be no assurance that Bonefos(R) can be
manufactured for sale and use in the United States at a cost or in quantities
necessary to make it commercially viable. If Anthra enters into the Bonefos
Agreements by exercising its option to do so under the Bonefos Option Agreement,
as it intends, Leiras Oy, pursuant to the Bonefos Agreements, undertakes to
supply the Company with Bonefos(R) for sale in the United States, subject to
certain conditions including the failure of Berlex to exercise its option to
acquire such rights. If Leiras Oy is then unable to manufacture Bonefos(R) on
acceptable terms or encounters delays or difficulties, the Company's human
clinical testing schedule would be delayed, resulting in delay of the market
introduction and subsequent loss of sales revenue (or, in the event Berlex
exercises its acquisition option, royalty revenue) for Anthra. This could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, Leiras Oy would also have the obligation to
supply all necessary documentation in support of the Company's Bonefos(R) NDA
and sNDAs on a timely basis and adhere to cGMP regulations enforced by the FDA
through its facilities inspection program. If these facilities cannot pass a
pre-approval inspection, the FDA approval of Bonefos(R) would not be granted.
Such failure could have a material adverse effect on the Company's business,
financial condition and results of operations.
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous, controlled and radioactive materials by certain of
its contractors. In addition, the Company's product Valstar(TM) in its final
form is a hazardous and a controlled substance with risks of contamination and
injury unless utilized in the prescribed method. The Company and its contractors
are subject to Federal, state, local and foreign laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products therefrom. Although the Company believes that the safety
procedures of the Company and its contractors for handling and disposing of such
materials comply with the standards
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<PAGE> 20
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could have a material adverse effect on the Company.
Risks Associated with International Operations and Foreign Currency
Fluctuations. The Company's international operations are anticipated to
comprise a substantial percentage of the Company's net revenue in the future
and, accordingly, the Company is subject to risks associated with international
operations. Such risks include managing a multinational organization,
fluctuations in currency exchange rates, the burden of complying with
international laws and other regulatory and product certification requirements
and changes in such laws and requirements, tariffs and other trade barriers,
import and export controls, restrictions on the repatriation of funds,
inflationary conditions, staffing, employment and severance issues, political
and economic instability and longer payment cycles in certain countries. The
inability to effectively manage these and other risks could adversely affect the
Company's business, financial condition and results of operations.
The Company has a clinical development facility in the United Kingdom
operated by Anthra UK, the operating expenses of which are also subject to the
effects of fluctuations in currency exchange rates. The Company generally does
not engage in hedging transactions which could partially offset the effects of
fluctuations in currency exchange rates. Additional financial exposure may
result due to the timing of transactions and movement of exchange rates. See
"Business -- Products and Markets."
Management of Growth. The Company has recently experienced, and expects to
continue to experience, significant growth in the number of its employees and
the scope of its operations. This growth has placed, and may continue to place,
a significant strain on the Company's management and operations. Should the
Company acquire any additional products by the end of 1999, the Company may
experience a large and immediate growth in its employees and operations. The
Company's ability to manage effectively such growth will depend upon its ability
to broaden its management team and its ability to attract, hire and retain
skilled employees. The Company's success will also depend on the ability of its
officers and key employees to continue to implement and improve its operational,
management information and financial control systems and to expand, train and
manage its employee base. These demands are expected to require the addition of
new management personnel and development of additional expertise to existing
management personnel. In addition, if Anthra reaches the point where its
activities require additional expertise in clinical testing, in obtaining
regulatory approvals, and in production and marketing, there will be increased
demands on Anthra's resources and infrastructure. There can be no assurance that
the Company will be able to effectively manage the expansion of its operations
or that its systems, procedures or controls will be adequate to support the
Company's products or proprietary technology. There can be no assurance that the
Company will be successful in adding technical personnel as needed to meet the
staffing requirements of the Company's current strategic collaborations or any
additional collaborative relationships into which the Company may enter. Any
such inability to manage growth could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Associated With Potential Acquisitions. The Company may acquire or
make substantial investments in complementary businesses, technologies or
products in the future. Any such acquisition or investment would entail various
risks, including the difficulty of integrating the technologies, operations and
personnel of the acquired business, technology or product, the potential
disruption of the Company's ongoing business and, generally, the potential
inability of the Company to obtain the desired financial and strategic benefits
from the acquisition or investment. These factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
Future acquisitions and investments by the Company could also result in
substantial cash expenditures, potentially dilutive issuances of equity
securities, the incurrence of additional debt and contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's business, financial condition and results
of operations.
Potential Adverse Market Impact of Shares Eligible for Future Sale;
Registration Rights. Sales of a substantial number of shares of the Company's
securities in the public market following the Offering could have an adverse
effect on the price of the Company's securities. Upon completion of the
Offering, the
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<PAGE> 21
Company will have 6,855,183 shares of Common Stock outstanding (7,155,183 if the
Underwriter's over-allotment option is exercised in full). Of these shares, the
2,000,000 shares included in the Units sold in the Offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"). However, the shares of Common Stock
included in the Units will not be traded on the American Stock Exchange until
the Separation Date. The remaining 4,855,183 shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 under the
Securities Act, and were issued and sold by the Company in reliance on
exemptions from registration under the Securities Act. These restricted shares
may not be sold in the public market unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
Rule 144, 144(k) or 701. Beginning 90 days after the date of this Prospectus,
approximately 4,855,183 restricted securities will become eligible for sale in
the public market pursuant to Rule 144 and Rule 701 under the Securities Act.
Additional shares of Common Stock will become eligible for resale in the public
market at subsequent dates, including after the Separation Date, including the
shares of Common Stock issuable upon the exercise of the Warrants, the
Underwriter's Warrant and the Warrants issuable thereunder.
The Company has represented to the Underwriter that it will obtain from
substantially all of the Company's stockholders certain lock-up agreements,
pursuant to which such stockholder will agree not, directly or indirectly, sell,
offer for sale, grant any option for the sale of or otherwise dispose of their
shares for a period commencing on the date of this Prospectus and ending on the
last day of the 13th month after the closing date of the Offering without the
prior written consent of the Underwriter. There can be no assurance that the
Company will be able to obtain such agreements from the stockholders. The
Company has agreed with the Underwriter that it will not file any registration
statement to register any of the securities granted or issued under the
Company's 1990 Stock Plan, as amended, during the 13 months following the
closing date of the Offering without the Underwriter's prior written consent.
See "Management -- 1990 Stock Plan" and "Shares Eligible for Future Sale."
It is a condition to the Offering that the Company obtain the agreement of
all holders of Preferred Stock to convert their shares of Preferred Stock to
Common Stock upon the consummation of the Offering.
Upon completion of the Offering, holders of 4,554,683 shares of the
Company's Common Stock will be entitled to certain rights with respect to
registration of such shares for offer or sale to the public. In addition, the
Company intends to register 1,700,000 shares of Common Stock reserved for
issuance under its 1990 Stock Plan as amended, following the date of this
Prospectus. See "Management -- Summary of Executive Compensation," "Principal
Stockholders" and "Shares Eligible for Future Sale."
The Warrants are exercisable on the Separation Date. The Underwriter's
Warrant is exercisable after the one-year period following the date hereof. The
exercise of the Warrants and the Underwriter's Warrant (and the Warrants
included as part thereof) will dilute the percentage ownership of the Company's
stockholders, and any sales in the public market of securities underlying the
Underwriter's Warrant and Warrants may adversely affect prevailing market
prices. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Underwriter's Warrant and Warrants can be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
on terms more favorable to the Company than those provided in the Underwriter's
Warrant and Warrants.
Lack of Current Specific Plans for Unallocated Offering Proceeds. The
principal purposes of the Offering are to increase the Company's capitalization
and financial flexibility and to expand the Company's current corporate
facilities and infrastructure. The Company currently does not have specific
plans for all of the net proceeds from the Offering. The Company expects to use
such proceeds for general corporate purposes, including working capital, product
development, capital expenditures and possible acquisitions. The amounts
expended for each purpose and the timing of such expenditures may vary depending
upon numerous factors. Consequently, the Company will have broad discretion in
determining the amount and timing of expenditures and in using the unallocated
proceeds of the Offering, and there can be no assurance that the Company will
use such discretion effectively or in a manner that will not result in a
material adverse effect on the Company's business, financial condition and
results of operation. See "Use of Proceeds."
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Absence of Prior Trading Market; Possible Volatility of Stock Price. Prior
to the Offering, there has been no public market for the Units, the Common Stock
or the Warrants and there is no assurance that an active market will develop or
be sustained after the Offering or the Separation Date, as the case may be.
Until the Separation Date, the Common Stock and the Warrants will not be
included for quotation on the American Stock Exchange. The initial public
offering price of the Units, and the exercise price and other terms of the
Warrants, will be determined through negotiations among the Company and the
Underwriter and may bear no relationship to the price at which the Units, the
Common Stock or the Warrants will trade upon completion of the Offering or the
Separation Date, as the case may be. See "Underwriting." It is likely that the
market price of the securities offered hereby, like that of the capital stock of
many other pharmaceutical companies at a similar stage of development, will be
highly volatile. Factors such as the results of preclinical studies and clinical
trials by the Company or its competitors, announcements of technological
innovations or new commercial therapeutic products by the Company or its
competitors, governmental regulation, changes in reimbursement policies,
healthcare legislation, developments in patent or other proprietary rights,
developments in the Company's relationships with future collaborative partners,
if any, public concern as to the safety and efficacy of drugs developed by the
Company, fluctuations in the Company's operating results, and general market
conditions may have a significant impact on the market price of the securities
offered hereby.
No assurance can be given that the market price of the Company's Common
Stock will exceed the exercise price of the Warrants at any time during their
exercise period.
Pursuant to the terms of the Company's Development Agreement with Medeva
(the "Medeva Agreement"), in the event that neither of two NDA approvals for
Valstar(TM) has been obtained by the Company by December 31, 2002, Medeva has
the right to require the Company to issue such number of shares of Common Stock
equal to 20% of the issued and outstanding voting equity securities of the
Company outstanding at the time of the exercise of such right. See
"Business -- Products and Markets."
Dilution. The initial public offering price is substantially higher than
the tangible book value per share of the Common Stock. Investors purchasing
shares of Common Stock included in the Units will therefore suffer immediate and
substantial dilution. Assuming the Company is successful in obtaining from all
of the holders of Preferred Stock agreements to convert all of their shares of
Preferred Stock into the same number of shares of Common Stock upon the closing
of the Offering and after giving effect to the resultant Preferred Stock
Conversion and the sale by the Company of the 2,000,000 Units offered hereby at
an assumed initial public offering price of $5.00 per Unit (and, for purposes of
this calculation, ascribing no value to the Warrants) and the receipt by the
Company of the estimated net proceeds therefrom, investors in this Offering will
experience immediate dilution of $4.77 per share. If the Company does not obtain
such conversion agreements, after the sale by the Company of the 2,000,000 Units
offered hereby at an assumed initial public offering price of $5.00 per Unit
(and, for purposes of this calculation, ascribing no value to the Warrants) and
the receipt by the Company of the estimated net proceeds therefrom, investors in
this Offering will experience immediate dilution of $8.28 per share. See
"Dilution."
Redemption of Warrants. The Warrants offered hereby are redeemable, in
whole or in part, at a price of $0.10 per Warrant, commencing 15 months from the
date of this Prospectus upon at least 30 days' prior written notice of such
redemption to the holders of the Warrants, provided that (i) the last sales
price of the Common Stock as reported on the American Stock Exchange (or, if not
then so listed, as otherwise provided in the Unit and Warrant Agreement between
the Company and American Stock Transfer & Trust Company (the "Warrant
Agreement")) has been at least $9.00 per share for 20 consecutive trading days
ending within 10 days of the date on which the notice of redemption is given and
(iii) there is a current registration statement covering the resale of the
underlying shares of Common Stock. The Company has agreed to use all
commercially reasonable efforts to either (i) keep this Registration Statement
effective through the Effective Deadline (as defined in the Warrant Agreement)
or until such time as no Warrants are outstanding or (ii) cause a registration
statement with respect to the shares of Common Stock underlying the Warrants to
be effective from the Separation Date through the Effective Deadline or until
such time as no Warrants remain outstanding. Holders of the Warrants may
exercise their Warrants after the Separation Date until the earlier to occur of
(i) the fifth anniversary of the effective date of the Registration Statement of
which this Prospectus forms a part and (ii) the close of the business day
immediately preceding the date fixed for redemption. Notice of redemption of the
Warrants could force holders to exercise the Warrants and pay the
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<PAGE> 23
exercise price therefor at time when it may be disadvantageous for them to do
so, sell the Warrants at the current market price 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 -- Warrants."
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. Holders of the Warrants will be able to sell the shares of Common
Stock issuable upon exercise of the Warrants only if a current registration
statement relating to such shares is then in effect and only if the shares are
qualified for sale under the securities laws of the applicable state or states.
The Company has undertaken and intends to file and keep current a registration
statement covering the shares of Common Stock issuable upon exercise of the
Warrants, but there can be no assurance that the Company will be able to do so.
Although the Company intends to seek to qualify such shares of Common Stock for
sale in those states where the Units are to be offered, there is no assurance
that such qualification will occur. The Warrants may be deprived of any value if
the current registration statement covering the shares underlying the Warrants
is not effective and available or such underlying shares are not or cannot be
registered in the applicable states. See "Description of
Securities -- Warrants."
Control by Existing Stockholders; Anti-Takeover Provisions. Upon the
closing of the Offering, the Company's Directors and executive officers will, in
the aggregate, beneficially own approximately 15.3% of Anthra's outstanding
shares of Common Stock (approximately 14.7% if the Underwriter's over-allotment
option is exercised in full). See "Principal Stockholders." Accordingly, these
stockholders, acting together, will be able to control many matters requiring
approval by the stockholders of the Company, including the election of
Directors. Moreover, the Company anticipates that its Amended and Restated
Certificate of Incorporation, as amended, and as in effect on the consummation
of the Offering (the "Amended Certificate of Incorporation"), will not provide
for cumulative voting with respect to the election of Directors. Consequently,
the present Directors and executive officers would be able to exercise
substantial influence over the election of the members of the Board of
Directors. Such concentration of ownership could have an adverse effect on the
price of the securities offered hereby or have the effect of delaying or
preventing a change in control of the Company. In addition, certain provisions
of Delaware law and the Amended Certificate of Incorporation could 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 Anthra. Such
provisions could limit the price that certain investors might be willing to pay
in the future for the securities offered hereby. These provisions of Delaware
law and the Amended Certificate of Incorporation may also have the effect of
discouraging or preventing certain types of transactions involving an actual or
threatened change of control of the Company (including unsolicited takeover
attempts), even though such transactions may offer the Company's stockholders
the opportunity to sell their stock at a price above the prevailing market
price. One of the provisions in the Amended Certificate of Incorporation allows
the Company to issue preferred stock without any vote or further action by the
stockholders. These provisions may 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 "Business," "Management,"
"Principal Stockholders," and "Description of Capital Stock -- Preferred Stock"
and "-- Anti-Takeover Law."
Year 2000 Issues. In the Year 2000, many existing computer programs that
use only two digits (rather than four) to identify a year in the date field
could fail or create erroneous results if not corrected. This computer program
flaw is expected to affect virtually all companies and organizations. The
Company believes that its internal systems are Year 2000 compliant. However, the
failure of third parties with which the Company does business to remediate their
Year 2000 problems could have a material adverse impact on the operations of the
Company.
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USE OF PROCEEDS
The 2,000,000 Units offered hereby are comprised of 2,000,000 shares of
Common Stock and 2,000,000 Warrants. The net proceeds to the Company from the
sale of the 2,000,000 Units offered hereby, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $7.8 million ($9.1 million if the Underwriter's over-allotment
option is exercised in full) based upon an assumed initial public offering price
of $5.00 per Unit. The Company anticipates that such net proceeds, together with
its other available cash and cash equivalents, will be used as follows: (i)
approximately $3.3 million for payments for rights to Bonefos(R); (ii)
approximately $100,000 to the Underwriter as a prepayment for a three year
consulting agreement (the "Consulting Agreement"); and (iii) the balance for
development of its products (including obtaining regulatory approvals for
Valstar(TM) and Bonefos(R)), potential additional product acquisitions and
general corporate purposes. See "Underwriting." While the Company engages from
time to time in discussions with respect to potential acquisitions, the Company
has no current plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus. Pending such uses, the Company
intends to invest the net proceeds from the Offering in United States government
securities and investment-grade, interest-bearing instruments.
The foregoing represents the Company's present intentions with respect to
the allocation of proceeds of the Offering based upon its present plans and
business conditions. The occurrence of certain unforeseen events or changed
business conditions, however, could result in the application of the proceeds of
the Offering in a manner other than as described in this Prospectus. See "Risk
Factors -- Lack of Current Specific Plans for Unallocated Offering Proceeds."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all future earnings, if any, to finance the
operations and expansion of the Company's business and therefore does not
anticipate paying cash dividends in the foreseeable future. In addition, the
Company's ability to pay dividends may be affected by financing arrangements
which the Company may enter into in the future.
22
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, (i) on an actual basis, (ii) on a pro forma basis to reflect an
assumed Preferred Stock Conversion and (iii) on a pro forma as adjusted basis to
give effect to the Preferred Stock Conversion and the sale by the Company of the
2,000,000 Units offered hereby, at an assumed initial public offering price of
$5.00 per Unit, less underwriting discounts and commissions and estimated
offering expenses payable by the Company, and the application of the estimated
net proceeds therefrom as set forth under "Use of Proceeds." This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)
-------- -------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Contingent stock obligation(1)....................... $ 8,000 $ 8,000 $ 8,000
-------- -------- --------
Mandatorily redeemable convertible preferred stock
(Series A, B and C Convertible Preferred Stock) at
redemption value (which includes accreted dividends
of $3,423,057); $0.01 par value: 3,150,588 shares
authorized, issued and outstanding, actual (none
issued and outstanding on a pro forma and pro forma
as adjusted basis)................................. 11,623 -- --
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock (Series D Convertible
Preferred Stock); $0.01 par value: 639,095
shares authorized, issued and outstanding,
actual (none issued and outstanding on a pro
forma and pro forma as adjusted basis).......... 6 -- --
Common stock, $0.01 par value: 15,000,000 shares
authorized 1,065,500, 4,855,183 and 6,855,183
shares issued and outstanding on an actual, pro
forma and pro forma as adjusted basis,
respectively)(2)................................ 11 49 69
Additional paid-in capital......................... 8,675 20,266 28,046
Deferred compensation.............................. (925) (925) (925)
Deficit accumulated during the development stage... (25,616) (25,616) (25,616)
-------- -------- --------
Total stockholders' equity (deficit)................. (17,849) (6,226) 1,574
-------- -------- --------
Total capitalization................................. $ 1,774 $ 1,774 $ 9,574
======== ======== ========
</TABLE>
- ---------------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Does not include (a) 1,535,487 shares of Common Stock issuable upon exercise
of stock options outstanding at June 30, 1998, with a weighted average
exercise price of $3.01 per share, of which options to purchase 509,787
shares of Common Stock were then exercisable (see "Management"), (options to
purchase 199,532 shares of Common Stock have been cancelled after June 30,
1998), (b) certain stock options to purchase Common Stock or Series D
Convertible Preferred Stock which may be granted to Nycomed pursuant to the
Nycomed Agreement (see "Business -- Products and Market -- Valstar(TM):
Licensing Agreements"), (c) 2,000,000 shares of Common Stock issuable upon
exercise of the Warrants, and (d) 400,000 shares of Common Stock issuable on
the exercise of the Units underlying the Underwriter's Warrant and the
Warrants underlying such Units.
(3) The Company is currently attempting to obtain agreements from all of the
holders of Preferred Stock to convert all of their shares of Preferred Stock
into the same number of shares of Common Stock upon the closing of the
Offering. The amounts presented assume that the Company obtains the
conversion agreements from each holder of Preferred Stock and the resultant
conversion of all issued and outstanding shares of Preferred Stock into
3,789,683 shares of Common Stock effective upon the closing of the Offering.
If the Company does not obtain such conversion agreements, the pro forma as
adjusted stockholders' equity (deficit) would be $(10,049,000), convertible
preferred stock would be $6,000, common stock would be $31,000, additional
paid-in capital would be $16,455,000 and mandatorily redeemable convertible
preferred stock would be $11,623,000.
23
<PAGE> 26
DILUTION
The pro forma net deficit in tangible book value of the Company as of June
30, 1998, was $(7,108,000), or $(1.46) per share of Common Stock. Pro forma net
deficit in tangible book value per share represents the Company's total tangible
assets less total liabilities, divided by 4,855,183 shares of Common Stock
outstanding (assuming the Company is successful in obtaining from all of the
holders of Preferred Stock agreements to convert all of their shares of
Preferred Stock into the same number of shares of Common Stock upon the closing
of the Offering and after reflecting the resultant Preferred Stock Conversion).
After reflecting the resultant Preferred Stock Conversion and the sale by the
Company of 2,000,000 Units in this Offering at the initial offering price
(attributing no value to the Warrants) and after deducting the underwriting
discounts and commissions and estimated offering expenses, the pro forma net
tangible book value of the Company as of June 30, 1998 would have been
$1,574,000, or $0.23 per share. This amount represents an immediate increase in
pro forma net tangible book value of $1.69 per share to existing stockholders
and the immediate dilution in net tangible book value of $4.77 per share to new
investors purchasing shares of Common Stock included in the Units in the
Offering. Dilution per share to new investors represents the difference between
the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering and the amount per share paid by purchasers of
shares of Common Stock included in the Units in the Offering. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 5.00
Pro forma net deficit in tangible book value per share at
June 30, 1998.......................................... $(1.46)
Increase per share attributable to new investors.......... 1.69
------
Pro forma net tangible book value per share after the
Offering.................................................. 0.23
------
Dilution per share to new investors......................... $ 4.77
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the differences between the existing stockholders (assuming the Company is
successful in obtaining from all of the holders of Preferred Stock agreements to
convert all of their shares of Preferred Stock into the same number of shares of
Common Stock upon the closing of the Offering and after reflecting the resultant
Preferred Stock Conversion) and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid, at the assumed initial
public offering price of $5.00 per Unit (attributing no value to the Warrants)
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
-------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 4,855,183 71% $18,852,750 65% $ 3.88
New investors............. 2,000,000 29% $10,000,000 35% $ 5.00
--------- --- ----------- ---
Total..................... 6,855,183 100% $28,852,750 100%
========= === =========== ===
</TABLE>
The Company is currently attempting to obtain agreements from all of the
holders of Preferred Stock to convert all of their shares of Preferred Stock to
the same number of shares of Common Stock upon the closing of the Offering. If
the Company does not receive such conversion agreements, the Preferred Stock
Conversion will not occur and the actual net deficit in tangible book value of
the Company as of June 30, 1998 is $(18,731,273), the pro forma net deficit in
tangible book value of the Company as of June 30, 1998 after reflecting the sale
by the Company of 2,000,000 Units in this Offering at the initial offering price
(attributing
24
<PAGE> 27
no value to the Warrants) and after deducting the underwriting discounts and
commissions and estimated offering costs would be $(10,049,493) and the per
share dilution would be as follows:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 5.00
Net deficit in tangible book value per share at June 30,
1998................................................... $(17.58)
Increase per share attributable to new investors.......... 14.30
------- ------
Net deficit in tangible book value per share after the
Offering.................................................. (3.28)
------
Dilution per share to new investors......................... $ 8.28
======
</TABLE>
If the Company does not receive the conversion agreements, the following
table summarizes, on a pro forma basis as of June 30, 1998, the differences
between the existing stockholders and new investors with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid to the Company and the average price per share paid, at the assumed initial
public offering price of $5.00 per Unit (attributing no value to the Warrants)
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
-------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 1,065,500 35% $ 2,403,100 19% $2.26
New investors............. 2,000,000 65% $10,000,000 81% $5.00
--------- --- ----------- ---
Total..................... 3,065,500 100% $12,403,100 100%
========= === =========== ===
</TABLE>
The foregoing computations do not include (a) 1,535,487 shares of Common
Stock issuable upon exercise of stock options outstanding at June 30, 1998, with
a weighted average exercise price of $3.01 per share, of which options to
purchase 509,757 shares of Common Stock were then exercisable (see
"Capitalization" and "Management") (options to purchase 199,532 shares of Common
Stock have been cancelled after June 30, 1998), (b) certain stock options to
purchase Common Stock or Series D Convertible Preferred Stock which may be
granted to Nycomed pursuant to the Nycomed Agreement (see "Business -- Products
and Market -- Valstar(TM): Licensing Agreements"), (c) 2,000,000 shares of
Common Stock issuable upon exercise of the Warrants, (d) 400,000 shares of
Common Stock issuable on the exercise of the Units underlying the Underwriter's
Warrant and the Warrants underlying such Units, and (e) Common Stock which may
be issuable to Medeva for 20% of the then issued and outstanding voting equity
securities if neither of two certain regulatory approvals is received by
December 31, 2002, pursuant to the Medeva Agreement (see "Business Products and
Market -- Valstar(TM): Licensing Agreements").
25
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data for each of the years in the three
year period ended June 30, 1998 and as of June 30, 1997 and 1998 have been
derived from consolidated financial statements of the Company which have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
included elsewhere in this Prospectus. The selected financial data for the years
ended June 30, 1994 and 1995, for the period from June 25, 1985 (inception) to
June 30, 1998 and as of June 30, 1994, 1995 and 1996 have been derived from
unaudited (except for the year ended June 30, 1995 and as of June 30, 1995 and
1996, which have been audited) financial statements of the Company which are not
included in this Prospectus. The selected consolidated financial data set forth
below are qualified in their entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Consolidated Financial Statements and Notes thereto and the
other financial information included elsewhere in this Prospectus. The
Independent Auditors' Report covering the June 30, 1998 consolidated financial
statements included elsewhere herein, contains an explanatory paragraph which
states that the Company's recurring losses from operations, net capital
deficiency and insufficient working capital raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEARS ENDED JUNE 30, JUNE 25, 1985
----------------------------------------------------------- (INCEPTION) TO
1994 1995 1996 1997 1998 JUNE 30, 1998
----------- ----------- ------- --------- --------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue....................................... $ -- $ -- $ 2,171 $ 1,688 -- $ 3,859
Operating Expenses:
Research and development.................... 2,418 2,591 3,649 6,610 9,212 26,824
General and administrative.................. 71 121 523 682 1,894 3,505
------- ----------- ------- --------- --------- --------
Total operating expenses...................... 2,489 2,712 4,172 7,292 11,106 30,329
Other income (expense)........................ 37 94 111 139 359 854
------- ----------- ------- --------- --------- --------
Net loss...................................... $(2,452) $ (2,618) $(1,890) $ (5,465) $ (10,747) $(25,616)
======= =========== ======= ========= ========= ========
Net loss allocable to common stockholders..... $(2,874) $ (3,271) $(2,543) $ (6,118) $ (11,400) $(29,039)
======= =========== ======= ========= ========= ========
Basic and diluted net loss per share allocable
to common stockholders(1)................... $ (4.02) $ (4.24) $ (3.01) $ (5.79) $ (10.70)
Shares used in computing basic and diluted net
loss per share allocable to common
stockholders(1)............................. 716 771 844 1,057 1,066
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------------------
1994 1995 1996 1997 1998
----------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents .................................. $ 3,391 $ 1,273 $ 1,713 $ 795 $ 2,912
Working capital (deficit)................................... 3,420 827 1,908 (598) 635
Total assets................................................ 3,580 1,322 2,732 915 4,100
Contingent stock obligation................................. -- -- -- -- 8,000
Mandatorily redeemable convertible preferred stock.......... 9,011 9,664 10,317 10,970 11,623
Convertible preferred stock................................. -- -- 3 3 6
Deficit accumulated during the developmental stage.......... (4,897) (7,515) (9,404) (14,869) (25,616)
Total stockholders' deficit................................. (5,558) (8,795) (8,330) (11,486) (17,849)
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. This Prospectus, including the following discussion, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this Prospectus. Unless otherwise indicated, all references to
years in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" refer to the fiscal years of the Company ended June 30.
OVERVIEW
Anthra is a specialized pharmaceutical company engaged in managing clinical
development and obtaining approval of NDAs and sNDAs for a portfolio of its
proprietary cancer drugs. The Company's current drug candidates are for the
treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions. At the present time, Anthra has entered
into four marketing agreements with major multinational drug companies for which
it has received certain initial payments and expects significant additional
payments in the form of milestone fees and royalty and supply payments.
To date, the Company has not received any revenue from the sale of
products, and no product candidate of the Company has been approved. The Company
has received a non-refundable $8 million payment pursuant to the Medeva
Agreement, which has been recorded as a contingent stock obligation at June 30,
1998, an additional $2.1 million payment received in September 1998 for having
achieved a certain milestone under the Medeva Agreement, and a $200,000 license
fee from Almirall pursuant to the Exclusive License Agreement, dated as of April
17, 1997, between Anthra and Almirall (f/k/a Prodesfarma, S.A.) (the "Almirall
Agreement"). To date the Company's primary source of capital has been the sale
of Preferred Stock, the payment from Medeva, license fees, and research and
development funding from its Collaborative Partners in connection with joint
development and licensing agreements with the Company, including the
aforementioned payments. As of June 30, 1998, the Company's accumulated deficit
was $25.6 million and its cash and cash equivalents was $2.9 million. While the
Company believes that Valstar(TM) will be approved for marketing for the ODAC
Recommended Indication by the end of calendar 1998, there can be no assurance
that the Company's products will be approved for marketing, that the Company
will attain profitability or, if profitability is achieved, that the Company
will remain profitable on a quarterly or annual basis in the future.
TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
The Company recognized $1.7 million in revenue for the year ended June 30,
1997, $200,000 of which was in connection with the Almirall Agreement in 1997,
$1.3 million in connection with the conversion of the Development and License
Agreement with Schering AG, Germany (f/k/a Schering AG) (the "Development
Agreement") into the Termination, Settlement and Investment Agreement with
Schering AG, Germany in July 1996 (the "Support Agreement") and $200,000 related
to research and development performed under the Development Agreement. No such
revenue was recognized for the year ended June 30, 1998. The Development
Agreement was converted into the Support Agreement based on the mutual agreement
between the companies as to how best to proceed with the development of
Valstar(TM). The impact of this conversion was that Schering AG, Germany was no
longer obligated to (i) reimburse the Company for future research and
27
<PAGE> 30
development, (ii) make potential license payments of up to $3 million and (iii)
pay potential future royalties. The Company is also obligated to make potential
royalty payments to Schering AG, Germany on Valstar(TM) sales.
Research and development expenses increased 39% from $6.6 million in 1997
to $9.2 million in 1998. This increase was largely due to increased levels of
activity with respect to the continued development of Valstar(TM). These
activities included a staff increase of nine employees, increased patient
enrollment in clinical studies, filing of the NDA for the Valstar(TM)
superficial bladder cancer indication and preparation for the June 1, 1998 ODAC
meeting.
General and administrative expenses increased from $682,000 in 1997 to $1.9
million in 1998, primarily as a result of increased business development and
expenses related to worldwide development and licensing agreements.
Other income (expense) increased from $139,000 in 1997 to $359,000 in 1998.
This increase reflects a significantly higher cash and cash equivalents balance
resulting from the following three transactions: the purchase by Nycomed, in
October 1997, of 300,000 shares of Series D Convertible Preferred Stock for $4.5
million; the purchase by Almirall, in April 1997, of 67,819 shares of Series D
Convertible Preferred Stock for $750,000 and the $8.0 million payment from
Medeva in July 1997 pursuant to the terms of the Medeva Agreement.
Net loss increased from $5.5 million in 1997 to $10.7 million in 1998. This
increase is primarily due to the increase in research and development spending,
business development and the discontinuation of development revenue following
the conversion of the Development Agreement to the Support Agreement in July
1996.
TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996
The Company recognized $2.2 million and $1.7 million in revenue for the
years ended June 30, 1996 and 1997, respectively, of which $2.2 million and
$200,000 related to research and development performed under the Development
Agreement, which was converted to the Support Agreement in July 1996.
Additionally, the Company recognized $1.3 million in connection with the Support
Agreement and a $200,000 fee in connection with the Almirall Agreement in 1997.
Research and development expenses increased 83% from $3.6 million in 1996
to $6.6 million in 1997. This increase was due primarily to increased activity
and costs associated with the pharmaceutical and clinical development of
Valstar(TM), including manufacturing, validation and preparation for filing the
NDA in the United States and a similar application in Europe.
General and administrative expenses increased from $523,000 in 1996 to
$682,000 in 1997, primarily due to increased business development activities.
Other income (expense) increased from $111,000 in 1996 to $139,000 in 1997
due to higher cash and cash equivalent balances resulting from the conversion of
the Development Agreement to the Support Agreement.
Net loss increased from $1.9 million in 1996 to $5.5 million in 1997 due to
the increase in research and development spending and due to the discontinuation
of development revenue following the conversion of the Development Agreement to
the Support Agreement in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1998, the Company has not generated
positive cash from operations and, accordingly, has financed its operations
primarily with the net proceeds received from private placements of Preferred
Stock, and research, development and licensing agreements. Such proceeds have
totaled approximately $30.6 million, and are comprised of the following: equity
investments of approximately $18.7 million; revenue from research arrangements
with Schering AG, Germany of approximately $3.7 million; and payments received
under licensing and development agreements of approximately $8.2 million
(approximately $8.0 million pursuant to the Medeva Agreement and $200,000 from
Almirall).
28
<PAGE> 31
Net cash used in operating activities was $2.5 million, $3.9 million and
$9.3 million in 1996, 1997 and 1998, respectively.
Cash and cash equivalents at June 30, 1998, totaled $2.9 million, compared
with $795,000 as of June 30, 1997, primarily as the result of funds received
pursuant to the Medeva Agreement, and from an equity investment by Nycomed in
Anthra, net of cash used in operations.
The Company anticipates that annual expenditures for clinical trials,
product development, preclinical studies, and general and administrative expense
will increase significantly in future years. In anticipation of the possible FDA
approval for marketing of Valstar(TM), the Company expects to begin preparing
for the commercialization of the Company's first product during 1999 and to
accelerate such preparation in 2000, adding substantial additional expense.
However, there can be no assurance that the Company will be able to successfully
complete the clinical development of Valstar(TM) for bladder cancer or any other
indication, that the FDA will grant approval within the time frame expected, if
at all, that the other developments or expansions in the Company's programs of
research, development and commercialization will not require additional funding
or encounter delays, or that, in light of these or other circumstances, the
Company will be able to achieve its planned levels of revenue, expense and cash
flow.
In July 1997, the Company executed a sublease for approximately 5,560
square feet located in the Carnegie Center in Princeton, New Jersey. The monthly
rent is $9,359, and the lease expires on November 30, 1999. The Company also
leases approximately 1,635 square feet of office space at The Malt House,
Princes Risborough, England for its Anthra UK offices. The quarterly rent is
L5,535 ($9,299 using a conversion factor of 1.68 dollars for 1 British pound),
and the lease expires in December 2000.
The Company expects to finance its continued growth and development
principally through this Offering and arrangements with strategic partners. The
Company believes the net proceeds from this Offering, together with current cash
and cash equivalent balances, the interest on combined cash balances, and
contingent funding (including royalties) from its Collaborative Partners, will
provide the Company with sufficient working capital to sustain operations
through approximately 1999, although there can be no assurance that the Company
will not require additional funding prior to that time. The Company anticipates
that if there are delays in its current programs, if its current programs of
research and development yield expansion opportunities, or if there are changes
in competitive and technological advances, the regulatory approval process or
other factors, the Company would seek additional financing, whether through
public or private equity or debt financings, corporate alliances, or
combinations thereof. In addition, the Company may require additional financing
in connection with its potential future product acquisition activities.
There can be no assurance that additional equity or debt capital will, if
needed, be available on terms acceptable to the Company, if at all. Any
additional equity financing could be dilutive to stockholders. Debt financing,
if available, may include restrictive covenants. If additional funds should be
needed but are not available, the Company may be required to curtail its
operations significantly or to obtain funds by entering into collaborative
arrangements or other arrangements on unfavorable terms. The failure by the
Company to raise capital on acceptable terms if and when needed would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company anticipates that the annual expenditures for research support
for Bonefos(R) to increase significantly during 1999, and to continue until at
least 2002. In addition, the Bonefos Option Agreement contemplates future
payments from the Company of $800,000 upon the execution of the Bonefos
Agreements, and $2.5 million upon the earlier of completion of a satisfactory
pre-NDA meeting with the FDA with respect to Bonefos(R) or December 31, 1998.
There can be no assurance that the Company will be able to successfully complete
the clinical development of Bonefos(R) for the treatment of hypercalcemia and
lytic bone disease, or that the FDA will grant the required approvals within the
time frame anticipated by the Company, if at all.
INFLATION
The Company does not believe that inflation has had any significant impact
on the Company's business to date.
29
<PAGE> 32
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company is currently engaged in a two-phase process to
evaluate its readiness with respect to the Year 2000 issue.
In the first phase, which the Company completed in the fourth quarter of
1998, the Company conducted an evaluation of its internal systems, including
both information technology ("IT") systems and non-IT systems such as hardware
containing embedded technology, for Year 2000 compliance. Based on this
evaluation, the Company does not believe that the impact of the Year 2000 issue
will be material on its internal systems.
In the second phase, the Company is taking steps to ensure that third
parties with which the Company has material relationships are Year 2000
compliant. To date, a confirmation has been received from the Company's primary
marketing partner that it is Year 2000 compliant. The Company also plans to
communicate with other third parties that it does business with to coordinate
Year 2000 readiness, which process is expected to be completed by the second
quarter of 1999.
Based upon the steps being taken to address this issue and the progress to
date, the Company believes that the Company's internal systems are Year 2000
compliant. In addition, the costs incurred and expected to be incurred by the
Company with respect to this process are not expected to be material. As a
contingency plan, the Company intends to mitigate the impact of noncompliance of
third parties with which the Company does business, by establishing contractual
relationship with alternative suppliers. The failure of third parties with which
the Company does business to remediate Year 2000 problems in their IT and non-IT
systems could have a material adverse impact on the operations of the Company.
THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND
ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING
THE TWO-PHASE PROCESS INCLUDE THE AVAILABILITY OF RESOURCES AND THE ABILITY OF
THE COMPANY'S THIRD-PARTY VENDORS TO BRING THEIR SYSTEMS INTO YEAR 2000
COMPLIANCE.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 becomes effective for the
Company's fiscal year 1999 and requires reclassification of earlier financial
statements for comparative purposes. SFAS 130 requires that all items defined as
comprehensive income, including changes in the amounts of certain items, foreign
currency translation adjustments and gains and losses on certain securities, be
shown in a financial statement. SFAS 130 does not require a specific format for
the financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement. The Company believes that the adoption of SFAS 130 will not have
a material effect on the consolidated financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued in
June 1997. SFAS 131 becomes effective for the Company's fiscal year 1999 and
requires restatement of disclosures for earlier periods presented for
comparative purposes. This new standard requires companies to disclose segment
data based on how management makes decisions about allocating resources to
segments and how it measures segment performance. SFAS 131 requires companies to
disclose a measure of segment profit or loss, segment assets, and
reconciliations to consolidated totals. It also requires entity-wide disclosures
about a company's products and services, its major customers and the material
countries in which it holds assets and reports revenues. The Company believes
that the adoption of SFAS 131 will not have a material effect on the
consolidated financial statements.
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Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"), was
issued in February 1998. SFAS 132 becomes effective for 1999 and requires
restatement of disclosures for earlier periods presented for comparative
purposes. SFAS 132 revises employers' disclosure about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans but rather standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate analysis, and eliminates certain disclosures that are no
longer useful. The Company believes that the adoption of SFAS 132 will not have
a material effect on the consolidated financial statements.
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<PAGE> 34
BUSINESS
GENERAL
Anthra is a specialized pharmaceutical company engaged in managing clinical
development and obtaining regulatory approval of NDAs and sNDAs for a portfolio
of its proprietary cancer drugs. The Company's current drug candidates are for
the treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions. At the present time, Anthra has entered
into four marketing agreements with major multinational drug companies for which
it has received certain initial payments and expects significant additional
payments in the form of milestone fees and royalty and supply payments.
In December 1997, Anthra filed an NDA for its first product, Valstar(TM),
for treatment of patients with superficial bladder cancer whose principal
current alternative is the surgical removal of their urinary bladder. In January
1998, Anthra received priority designation from the FDA for the review of this
NDA. On June 1, 1998, ODAC reviewed Valstar(TM) and declined to recommend
approval to the FDA of Valstar(TM) without additional analyses. On September 1,
1998, ODAC re-evaluated Valstar(TM) and voted to recommend to the FDA approval
of Valstar(TM) for treatment of patients with the ODAC Recommended Indication.
The Company anticipates that the NDA for Valstar(TM) for this indication will be
approved by the FDA in 1998. See "-- Government Regulation."
Valstar(TM) is an anthracycline with multiple cytotoxic mechanisms that was
discovered at Dana-Farber. Valstar(TM) has been shown to have significant
activity against a variety of tumor cell lines and is not associated with
significant contact toxicity, thereby making it an ideal choice for regional
chemotherapy. The Company's pivotal clinical studies, have demonstrated a
complete response rate of 18% (which rate was supported by the FDA) in a group
of 90 patients with bladder cancer who had not responded satisfactorily to
extensive pre-treatment with BCG, the accepted first line treatment for
superficial bladder cancer. There are currently no drugs approved in the United
States or Europe for second-line treatment of bladder cancer following BCG
therapy. For these patients, surgical removal of the bladder is the only
approved definitive form of therapy. Importantly, 35% of the patients in the
Company's pivotal clinical studies retained their bladder up to 48 months
following study entry. Anthra, consistent with its multiple disease indication
strategy, is developing Valstar(TM) for three additional indications. One Phase
III program is directed at patients with papillary superficial bladder cancer,
for whom approximately 180,000 transurethral resection procedures are being
performed annually in the United States. In another Phase III program involving
patients with ovarian cancer, Valstar(TM) is being administered directly into
the peritoneal cavity, where the cancer is confined. In addition, Anthra plans
to commence a Phase I program to obtain approval for use of Valstar(TM) in
treating prostate cancer. The Company has researched the historical incidence of
each of these diseases based on publicly available information and reports
prepared for the Company by MedProbe, including a report summarizing the results
of a survey of 1.5% (124) of office and hospital based urologists reported to be
members of the AMA. Although precise patient data is not published and can vary
significantly from year to year, based on the foregoing research and certain
assumptions made by the Company, including the estimated cost of treating each
of the estimated number of patients with Valstar(TM), the Company estimates that
the potential market for Valstar(TM) in the United States could approximate
nearly $600 million per annum, and that foreign markets will provide a
significant additional opportunity for sales of Valstar(TM). See "-- Products
and Markets." No assurance can be given by the Company that this estimated
market for Valstar(TM) will be achieved.
Medeva has committed up to $26.2 million (of which $10.1 million has been
paid to date) and the payment of future royalties for the right to market and
sell Valstar(TM) in the United States. Anthra currently
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<PAGE> 35
has similar arrangements for Valstar(TM) with Nycomed, and Almirall, with
respect to marketing and sales rights in Europe. In total, Anthra has entered
into agreements for Valstar(TM) providing potential equity investment, licensing
and development fees and milestone payments of up to $42.9 million (of which
$24.4 million has been paid to date), plus additional royalty and supply
payments. See "-- Products and Markets."
In accordance with the Company's corporate development strategy, Anthra
identified Bonefos(R), a product for the treatment of hypercalcemia and lytic
bone disease associated with breast and lung cancer and owned by Schering AG,
Germany, the Company's largest pharmaceutical shareholder. Bonefos(R) has been
on the market in Europe and the rest of the world since 1985, with worldwide
sales of approximately $150 million in 1997. In July 1998, Anthra entered into
the Bonefos Option Agreement to acquire the exclusive United States development
and marketing rights to Bonefos(R) for the hypercalcemia and lytic bone disease
indications, for payments aggregating $3.75 million, including a nonrefundable
$250,000 payment under a prior term sheet. In consideration of the Company's
nonrefundable payment of $200,000 (also included in the $3.75 million), the
Bonefos Option Agreement grants the Company the option to enter into the Bonefos
Agreements, both of which have been fully negotiated. See "-- Products and
Markets -- Bonefos(R): Bonefos Option Agreement." The Company intends to
exercise this option prior to the expiration of the option on September 30,
1998, by making an additional nonrefundable $800,000 payment to Leiras Oy.
Following the execution of the Bonefos Agreements in conjunction with the
Company's exercise of its option under the Bonefos Option Agreement, the Company
plans to conduct Phase III trials in the United States for Bonefos(R) for the
hypercalcemia and lytic bone disease indications. The Bonefos Agreements provide
that, upon FDA approval of an NDA for Bonefos(R), Berlex will have the option to
acquire from the Company the exclusive right to market Bonefos(R) in the United
States for the hypercalcemia and lytic bone disease indications for payments of
up to $21 million, plus future royalties. The Company has researched the
historical incidence of hypercalcemia and the types of lytic bone disease that
Bonefos(R) treats based on publicly available information. Although precise
patient data is not published and can vary significantly from year to year,
based on the foregoing research and certain assumptions made by the Company,
including the estimated costs of utilizing Bonefos(R) for the treatment of these
maladies using each of the estimated number of patients, the Company estimates
that the potential market for Bonefos(R) in the United States could approximate
nearly $900 million per annum. See "-- Products and Markets." No assurance can
be given by the Company that this estimated market for Bonefos(R) will be
achieved.
Anthra believes that its strategy and accomplishments have positioned it to
become a recognized platform for the clinical substantiation and regulatory
approval of cancer drugs capable of treating multiple disease indications. The
Company is currently assessing and evaluating additional cancer-related late
stage candidates for acquisition, although no definitive agreements have been
executed. Management believes that focused, cost effective development increases
the likelihood of successful clinical development and regulatory approval.
Indicative of this strategy has been the Company's success in filing an NDA for
Valstar(TM) at a total research and development cost of less than $20 million.
According to PPSS, in the United States, the cost of developing an approved new
drug has been estimated to be between $304 million and $608 million.
The Company currently has one wholly-owned subsidiary, Anthra UK, through
which it manages its program for Europe. In addition, in order to centralize the
testing, manufacturing and storage of Valstar(TM) and Bonefos(R) in close
proximity to the intended suppliers of starting materials, manufacturers and
warehousers of Valstar(TM) and Bonefos(R), which are located either in
Switzerland or elsewhere in Europe, the Company may form one or more wholly
owned Swiss subsidiaries, which would hold substantially all the Company's
rights to Valstar(TM) and Bonefos(R). In this manner, the Company believes it
would be better able to control and oversee the manufacturing supply,
development and distribution of Valstar(TM) and Bonefos(R) in the amounts
required.
INDUSTRY OVERVIEW
As pharmaceutical product development has become progressively more costly
and complex, maintaining the pace of innovation in the pharmaceutical industry
has been difficult. According to PPSS, in the United States, the cost of
developing a new drug has been estimated to be between $304 million and $608
million. According to the Tufts Center for the Study of Drug Development, it
takes 15 years, on average, for an experimental drug to travel from the clinical
laboratory to use in treatment of United States patients. The
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<PAGE> 36
average clinical development time for drugs approved in 1994 and 1995 by the FDA
was seven years, compared to six years for drugs approved from 1990 to 1993.
Only five in 5,000 compounds that enter pre-clinical testing make it to human
trials; and only one of those five is approved by the FDA. According to the
Pharmaceutical Research and Manufacturers Association, investment in research
and development by research-based pharmaceutical companies has increased
dramatically since 1980. In fact, over the past ten years, research and
development investment has more than tripled from $6.5 billion in 1988 to a
projected $20.6 billion in 1998. Over the next decade, most large and
medium-sized pharmaceutical companies will grapple with the fact that many of
their most profitable products are nearing the end of patent protection and
their research and development efforts are not producing replacements to
continue to justify the significant investments which such companies have made
in their sales and marketing infrastructure. Thus, there is significant and
growing demand for drugs that have a high probability of reaching the market in
the near term.
The shortage of effective drugs is particularly acute in the oncology
market. Cancer already is responsible for nearly 25% of the deaths in the United
States and, if mortality rates for other leading causes of death, such as heart
disease and stroke, continue their declining trends, cancer will become the
leading cause of death among Americans in the early 21()st century. According to
Healthcare Forecasting Incorporated Reports, the oncology drug market in 1996
was estimated to be $3.1 billion. Oncology is currently one of the five largest
therapeutic markets in the United States and Europe, but few major
pharmaceutical companies participate in this market on a worldwide level.
Moreover, most of the most active and widely used chemotherapeutic drugs have
been on the market for a decade or more, and are thus at or nearing the end of
their patent protection period.
Due to this shortage of new drugs entering the market, as a direct result
of the Prescription Drug User Fee Act of 1992, as amended, the FDA has devoted
more resources to the review of NDAs, including NDAs for new molecular entities
("NMEs"), and to the review of supplemental applications for expanded claims.
The process has taken less time than it did previously, and an increased number
of products are receiving approval. In 1996, 53 NME's (up from 26 in 1995) and
nine biological products (up from two in 1995) were approved. Of those approved
in 1996, five were oncology drugs: docetaxol, gemcitabine, irinotecan,
nilutamide, and topotecan. The 17 drugs designated for "priority review" in 1996
were approved in an average time of 13.7 months. In 1997, 39 NMEs and 10
biological products were approved. A significant trend towards shorter approval
times has been observed for NMEs (9% decrease to 16.2 months from the previous
year). In 1997, nine NMEs and three biological products received priority
review -- four of the nine priority NMEs and all of the priority biological
products were approved within six months of filing acceptance. Of the 1997
approvals, six were oncology products: intrapleural talc, samarium sm 153 EDTMP,
letrozole, toremifene, oprelvekin and rituximab. Interferon alfa-2b, previously
approved for use in hairy cell leukemia and hepatitis, received approval of a
supplemental application for an additional oncology claim. The mean approval
time of the last six priority oncology drug products (NMEs) granted priority
review was 12 months. With the Food and Drug Administration Modernization Act of
1997, as amended (the "FDAMA"), user fees have been extended for five years and
a variety of measures designed to expedite review of drugs and biological
products have been enacted. Whether they will have any effect in general or with
respect to any drugs that the Company is or will be developing, and the
magnitude of any such effect, cannot be known.
The foregoing trends have created an opportunity that is being exploited by
the numerous smaller specialized pharmaceutical companies that have emerged over
the past decade. For example, hundreds of drug discovery and research based
companies have been formed around scientific advances in the understanding of
cancer. Despite the promise of these advances, however, few products have
emerged, in part because these companies lack the expertise in clinical
development needed to ensure the development and commercialization process is
completed in a timely and cost effective manner. Many larger companies also lack
experience in clinical development of oncology products because they focus on
large single disease markets, whereas cancer is a heterogeneous set of diseases.
Anthra had positioned itself as a specialized pharmaceutical company, dedicated
to the clinical and commercial development of cancer drugs. Anthra's record of
performance with the development of and filing of an NDA for Valstar(TM)
supports this positioning in that the clinical development time for such NDA was
5.5 years and the total cost to file the NDA was under $20 million.
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BUSINESS STRATEGY
The availability of a large number of novel compounds with therapeutic
potential, combined with the pressing demand by major pharmaceutical companies
for approved products, has created a significant opportunity for organizations
with expertise in the transformation of promising lead compounds into safe and
effective drugs. Furthermore, Anthra believes that the clinical development of
cancer drugs can be less costly and presents a lower risk than drug development
for other major diseases because of the FDA's policy with respect to drugs for
life-threatening diseases, such as cancer. Anthra intends to exploit these
opportunities by implementing a strategy based on the following key elements:
- CONCENTRATE ON THE CLINICAL AND COMMERCIAL DEVELOPMENT OF DRUGS WITH
DEMONSTRATED ACTIVITY IN THE TREATMENT OF SPECIFIC TYPES OF CANCER. The
Company draws upon the expertise of its management team and its Scientific
Advisory Board, as well as established relationships with pharmaceutical
companies and research organizations, to identify and procure rights to
oncology compounds which have exhibited a potential for late-stage
development. The Company believes that this focus will enable it to build
a strong product portfolio without extensive investment in the
infrastructure required to support drug discovery efforts and pre-clinical
research.
- MINIMIZE THE TIME AND COST OF DRUG DEVELOPMENT BY THE PRUDENT SELECTION
OF PRODUCT CANDIDATES AND DISEASE INDICATIONS AND THROUGH THE RIGOROUS
DESIGN AND IMPLEMENTATION OF CLINICAL TESTING PROGRAMS. The Company has a
detailed checklist of requirements that any potential drug candidate must
satisfy. The drug candidate must be a novel, proprietary compound for use
in treatment and/or management of cancer or complications from cancer. The
drug candidate must have a pre-clinical and manufacturing dossier that
will support an investigational new drug application (an "IND") with the
FDA. Except in exceptional circumstances, the drug candidate should have
undergone early clinical testing that demonstrated safety and activity in
humans. The drug candidate should have broad enough activity to support
claims for multiple disease indications. Recognizing that the scrupulous
direction and management of the clinical trials process is absolutely
crucial to rapid and cost effective drug development, Anthra fully
supports the studies it sponsors, maintaining direct contact with all
participating clinical investigators and sites. For its Valstar(TM)
program, for example, clinical studies were conducted at more than 100
sites in the United States and Europe.
- STAGE DEVELOPMENT OF DRUG CANDIDATES TO REDUCE RISKS INHERENT IN CLINICAL
STUDIES. Anthra's initial stage of clinical development focuses on a
specific disease indication where safety and efficacy can be easily and
reliably demonstrated to support filing for regulatory approval and rapid
market penetration. Because regulatory authorities recognize the need for
new drugs to treat the many cancer indications for which there are neither
definitive treatments nor approved products, the clinical trials and
regulatory approvals process is more expeditious than for other disease
states. The later phases of clinical development target broader
indications and support supplemental regulatory filings that lead to
expanded markets for the product.
- ADDRESS THE SIGNIFICANT AND GROWING DEMAND OF LARGE AND MEDIUM-SIZED
PHARMACEUTICAL COMPANIES FOR NEW ONCOLOGIC PRODUCTS. A recent Arthur
Andersen LLP survey reported that the development pipelines of large drug
companies are producing only 10% of the new products needed to sustain
their current economic returns. With many of their profitable drugs slated
to lose patent protection over the next five to seven years, these
companies are actively seeking marketing and development rights for new
products at or near the stage of filing for regulatory approvals.
- FORM STRATEGIC COLLABORATIONS WITH SELECTED CORPORATE PARTNERS. Anthra
has established and will continue to pursue arrangements with
pharmaceutical companies to provide the Company with access to promising
compounds, and marketing and distribution capability for approved
products. These arrangements should allow Anthra to concentrate on its
strength in clinical development, while providing Anthra with financing
for growth and the acquisition of additional compounds.
- CAPITALIZE ON THE SIGNIFICANT INVESTMENT IN CANCER DRUG DISCOVERY AT
ACADEMIC INSTITUTIONS AND SPECIALIST R&D COMPANIES. Because many of these
institutions and companies lack the experience
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<PAGE> 38
and resources to transform promising new compounds into marketable
products, Anthra is advantageously positioned to negotiate licensing
agreements for clinical and commercial development of these drugs.
Anthra has demonstrated with Valstar(TM) that it can implement the
foregoing strategy successfully. Anthra has completed the initial phase of its
Valstar(TM) program and filed an NDA in December 1997 based on clinical trials
of Valstar(TM) for treatment of refractory bladder cancer, less than five years
after the Company established the drug's activity and launched pivotal clinical
studies for this indication. With the arrangements it has established, including
those with Medeva, Nycomed and Almirall, the Company may receive up to a total
of $42.9 million (of which $24.4 million has been paid to date) in licensing and
development fees, milestone payments and equity investments, plus additional
royalty and supply payments.
PRODUCTS AND MARKETS
Many specialized pharmaceutical companies are built on a technology
platform that generates many lead compounds, only a small fraction of which can
be developed into products. In contrast, Anthra specializes in developing late
stage drug candidates into marketable products. Anthra has invested and intends
to continue to invest its resources only in drug candidates that have both
evidence of safety and activity in humans, and the potential to treat both
narrow and broad disease indications.
VALSTAR(TM): A NOVEL ANTHRACYCLINE FOR REGIONAL CHEMOTHERAPY
Valstar(TM) is an anthracycline with multiple cytotoxic mechanisms that was
discovered at Dana-Farber. Anthracyclines such as doxorubicin and daunorubicin
are among the most active and widely used anti-tumor agents in the current
pharmacopoeia. Pre-clinical studies and early institutional clinical trials at
Dana-Farber indicated that the pharmacologic profile of Valstar(TM) makes it
particularly attractive as an agent for regional chemotherapy, i.e., the direct
administration of a concentrated drug solution to a body cavity or organ.
Regional chemotherapy is designed to maximize treatment of locally confined
tumors by delivering very high doses of the therapeutic agent to the afflicted
organ or region while reducing systemic exposure to such agent and the
consequent side effects. As a lipophilic molecule, Valstar(TM) penetrates cell
membranes rapidly. Valstar(TM) has been shown to have significant activity
against a variety of tumor cell lines and is not associated with significant
contact toxicity, thereby making it an ideal choice for regional chemotherapy.
Finally, no cumulative cardiotoxicity has been observed with Valstar(TM) as
opposed to other anthracyclines.
Anthra's clinical development program for Valstar(TM) has focused on two
primary routes of administration: intravesical ("IVe") (instillation of the drug
solution in the bladder) and intraperitoneal ("IP") (introduction of the drug
solution into the peritoneal cavity). The Company is sponsoring clinical studies
of Valstar(TM) to support applications to market the drug in these and other
regions. In addition, Anthra has sponsored pre-clinical studies to test the
feasibility of administering Valstar(TM) directly into the prostate gland via
direct injection. Table I is an overview of Anthra's Valstar(TM) clinical
development program. There can be no assurance, however, that Anthra will
receive approval to market Valstar(TM) for the claims listed in Table I. See
"Risk Factors -- Uncertainties Related to Clinical Trials; Uncertainty of
Government Regulatory Requirements; Lengthy Approval Process."
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TABLE I. SUMMARY OF VALSTAR CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
INDICATION/
TREATMENT TYPE RATIONALE STATUS OF DEVELOPMENT
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Refractory Superficial Bladder - No agents approved for - United States NDA filed;
Cancer/Intravesical (IVe) refractory indication Orphan Drug designation
- High dose intensity; - ODAC recommended the ODAC
prevent/delay cystectomy Recommended Indication
- European EMEA application
filed
- ----------------------------------------------------------------------------------------------
Papillary Bladder Cancer/ - No agents approved for claim - United States Phase III
IVe Immediately Following in United States study ongoing
TURB - High dose intensity; - European Phase III study to
prevent/delay disease be launched in fiscal year
recurrence and/or 1999
progression
- Low incremental cost to
healthcare system
- ----------------------------------------------------------------------------------------------
Advanced Refractory Ovarian - IP administration of - United States and Canada
Cancer/Intraperitoneal (IP) cytotoxic agents has been Phase III study ongoing
shown to be of clinical - European Phase III protocol
value compared to proposed
intravenous administration
- No agents approved for IP
administration
- High dose intensity;
maximize pharmacologic
advantage of IP therapy
- ----------------------------------------------------------------------------------------------
Locally Confined Prostate - No effective chemotherapy - United States Phase I
Cancer/Intraprostatic (local or systemic) protocol accepted by FDA;
Injection - Excellent pre-clinical activation planned for
safety profile fiscal year 1999
- Regional treatment to
prevent/delay prostatectomy
- ----------------------------------------------------------------------------------------------
</TABLE>
BLADDER CANCER -- OVERVIEW AND MANAGEMENT
In the United States, bladder cancer affects 54,000 new patients annually
and there are over 500,000 patients living in the United States who have been
diagnosed with the disease. It is approximately three to four times more common
in men than women and the disease most frequently occurs in the sixth and
seventh decades of life. Figure 1 depicts the management of patients with
bladder cancer. The two principal forms of the disease are invasive (occurring
in approximately 10% to 15% of patients) and superficial (occurring in the
remainder). The majority of patients diagnosed with bladder cancer have
superficial transitional cell carcinoma. Patients diagnosed with invasive
disease typically undergo surgical removal of the bladder (cystectomy) and often
require systemic chemotherapy, while patients with superficial disease are
managed much more conservatively.
There are two principal types of superficial bladder cancer: carcinoma
in-situ and papillary tumors. Most commonly, papillary tumors are characterized
as having a low to intermediate potential for invasion and are managed by
transurethral resection of the bladder ("TURB") and surveillance cystoscopy with
repeat TURB upon documented recurrence. However, some patients are considered to
have aggressive disease with a high risk of developing invasion, thereby
requiring IVe (in the bladder) administration of BCG therapy. Patients with
carcinoma in-situ are considered to be at high risk of developing invasive
disease and require IVe administration of BCG therapy.
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FIGURE 1. BLADDER CANCER MANAGEMENT
[BLADDER CANCER MANAGEMENT CHART]
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VALSTAR(TM) IN PATIENTS WITH BCG-REFRACTORY SUPERFICIAL BLADDER CANCER
Prior to the introduction of BCG, patients with carcinoma in-situ and high
risk papillary tumors underwent cystectomy due to the aggressive nature of the
disease. With BCG, the need to use cystectomy in patients with superficial
bladder cancer has been markedly reduced. Complete response rates with BCG
treatment are in the 70% range. When patients are shown to have had an
inadequate response to BCG, that is, are not rendered disease-free or recur
following recommended BCG treatment regimens, they are considered refractory,
and surgical removal of the bladder is the principal treatment. Due to the
significant alteration in life style, near term and long-term complications, and
compromise of quality of life, patients and physicians desire greatly to salvage
bladders. However, there are currently no drugs approved in the United States or
Europe for second-line treatment of bladder cancer following BCG therapy.
Anthra has targeted the first use of Valstar(TM) for patients with
refractory superficial bladder cancer. In 1993, the Company began pivotal
clinical studies after discussing the requirements for approval of Valstar(TM)
for this claim with the FDA. Anthra applied for and received Orphan Drug
designation for Valstar(TM), which would confer seven years of market
exclusivity upon NDA approval, for the treatment of patients with this
condition. Accrual and follow-up in the pivotal studies for the NDA for this
claim concluded in April 1997 and such NDA was submitted to the FDA in December
1997. The studies included 90 patients with BCG-refractory disease; 58% of whom
received at least three prior courses of IVe therapy. Life table analyses
revealed that the probability of obtaining a complete response (no evidence of
disease documented by cystoscopic inspection with biopsy and cytology) to
Valstar(TM) treatment was 18%, which conclusion was supported by the FDA.
Importantly, 35% of the patients (based on Kaplan Meier life-table estimates
with up to 48 months follow up) enrolled in the studies did not undergo
cystectomy. Thus, Valstar(TM) provided many patients with the opportunity for
meaningful bladder salvage.
The FDA has begun its evaluation of the aforementioned NDA and gave the
application "priority review" status. Such status is no assurance that the NDA
will be approved or that, if approved, the approval will be granted within any
particular period of time. In the course of reviewing NDAs, the FDA often finds
it necessary to call upon the knowledge of experts in clinical research and the
treatment of patients. The FDA has instituted an advisory committee system to
assist in the establishment of guidelines with respect to the clinical
development of new drugs for a variety of diseases and to help the FDA in the
evaluation of specific NDAs. On June 1, 1998, ODAC reviewed Valstar(TM) and
declined to recommend that the FDA approve Valstar(TM) without additional
analyses. On September 1, 1998, ODAC re-evaluated Valstar(TM) and voted to
recommend to the FDA approval of Valstar(TM) for treatment of patients with the
ODAC Recommended Indication. However, such recommendation is not binding on the
FDA. While the Company anticipates that the NDA for Valstar(TM) for the ODAC
Recommended Indication will be approved by the FDA in 1998, there can be no
assurance that the FDA will follow ODAC's recommendation. If this NDA is
approved, Valstar(TM) will be marketed for IVe administration to the
approximately 6,000 urologists in the United States by Medeva. See
"-- Valstar(TM) -- Licensing Agreements." The Company has also agreed to provide
Valstar(TM) to the Eastern Cooperative Oncology Group ("ECOG") for a study that
the Company commenced in July 1998 involving patients with all forms of
superficial bladder cancer who have proven refractory to BCG treatment.
In May 1998 the Company filed with the European Agency for the Evaluation
of Medicinal Products ("EMEA") an application for approval of a similar claim in
Europe based upon the results of a pivotal study that it performed at five study
centers in three European countries and the results of the pivotal studies
conducted in the United States. The European study evaluated Valstar(TM) in the
treatment of 45 patients with high risk superficial bladder cancer who were
refractory to multiple TURB procedures and IVe courses of treatment with BCG and
mitomycin. Complete responses confirmed by cystoscopic evaluation with biopsy
and cytology were documented in approximately 50% of patients with residual
papillary tumors at the time of treatment with Valstar(TM). No drugs are
approved in Europe for the treatment of patients with refractory high-risk
superficial bladder cancer. The EMEA has accepted Valstar(TM) for the
centralized review procedure. Drugs accepted for review under the centralized
procedure are given ten year marketing exclusivity from the date of approval in
all European Union ("EU") countries. The Company plans to seek approval for
Valstar(TM) in other European countries, as well. If approved, Nycomed and
Almirall will market Valstar(TM) to urologists throughout Europe.
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VALSTAR(TM) IN PATIENTS WITH LOW TO INTERMEDIATE RISK PAPILLARY SUPERFICIAL
BLADDER CANCER
Papillary tumors are the most common form of superficial bladder cancer and
patients with a low to intermediate risk of developing invasive disease far out
number those with aggressive forms of the disease. The principal form of
treatment of patients with papillary tumors is TURB. Patients with papillary
tumors typically have recurrence necessitating repeat TURB procedures.
Recurrence rates depend upon the number, stage and grade of the tumors. Most of
the 180,000 TURBs performed annually in the United States are undertaken
involving patients with recurrent superficial bladder cancer. As illustrated in
Figure 2, during the TURB procedure, a rigid cystoscope is inserted into the
bladder via the urethra and overt tumors are resected and biopsies are taken
from areas suspicious for tumor involvement. Normal appearing areas of the
bladder mucosa are frequently sampled in an effort to diagnose carcinoma
in-situ, which is not often visible. There are several theories regarding the
biology of recurrence, including regrowth of excised tumors, development of new
tumors due to genetic and environmental factors, and implantation of tumor cells
at the time of TURBs in areas denuded during the procedures. Implantation of
stray "floating" tumor cells in areas in which the urothelium has been disrupted
may be followed by the growth of the implanted cells to form a new tumor. This
is especially so after the affected area has healed (re-epithelialization). The
best opportunity to interfere with the pathophysiology of implantation-mediated
recurrence is prior to the re-epithelialization of the sites denuded during the
TURB, that is, as soon as possible following the procedure. The administration
of an IVe agent shortly after the TURB has been shown to reduce recurrence
rates, presumably by destroying residual floating tumor cells before they can
implant or prior to re-epithelialization of areas in which tumor cells have
landed.
FIGURE 2. ADJUNCTIVE TREATMENT WITH VALSTAR(TM)
[TURB PROCEDURES GRAPHIC]
There are no drugs in the United States approved for IVe administration
shortly after TURB. In fact, BCG, the most widely used IVe agent, is
contraindicated for patients with any signs of compromised bladder integrity
because sytemetization of the tubercle bacillus has led to severe adverse
reactions. Anthra has conducted a Phase I/II study of Valstar(TM) administered
immediately following TURB in 22 patients. This study documented the safety of
adjunctive administration of Valstar(TM) and served as the basis for discussions
with the FDA regarding the development of Valstar(TM) for approval in this
setting. Anthra has commenced a Phase III randomized pivotal study of adjunctive
Valstar(TM). The results of this study, if positive, will serve as the basis for
FDA approval of Valstar(TM) for single-dose adjunctive therapy in conjunction
with TURB procedures. If approved, Valstar(TM) will be marketed for IVe
administration to the 6,000 urologists in the United States by Medeva. See
"-- Valstar(TM) -- Licensing Agreements." The Company will also seek European
approval of adjunctive therapy for low to intermediate risk papillary tumors. If
approved, Nycomed and Almirall will market Valstar(TM) to urologists throughout
Europe.
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<PAGE> 43
VALSTAR(TM) IN PATIENTS WITH OVARIAN CANCER
Ovarian cancer affects 25,400 new patients annually in the United States,
and there are approximately 60,000 patients in the United States that have been
diagnosed with the disease. With an estimated 14,500 deaths in 1996, ovarian
cancer caused more deaths in the United States than any other cancer of the
female reproductive system. Ovarian cancer is often "silent", showing no signs
or symptoms until late in its development, and only 23% of all cases are
detected at a localized stage. Figure 3 illustrates the management of ovarian
cancer. Aggressive surgery, that is, removal of all sites of tumor involvement
as well as the ovaries, fallopian tubes, and uterus, is typically performed.
Front-line systemic chemotherapy is then typically administered. Although the
regimens employed in up-front treatment continue to be optimized, in the United
States the use of intravenously administered platinum and paclitaxel is the
standard. In a large study performed by the Southwest Oncology Group ("SWOG"),
the Gynecologic Oncology Group ("GOG"), and ECOG (each of which is a government
sponsored cancer research network associated with the National Cancer Institute
of the National Institute of Health), involving patients with small volume
disease following surgery, IP administration of cisplatin has been shown to be
superior to intravenously administered cisplatin. However, cisplatin is not
approved for IP use. The high dose intensity achieved via IP administration and
the direct contact of drug with tumor cells and small volume tumor nodules is
believed to account for the effectiveness of this route. Following front-line
therapy, patients are monitored closely using physical examination, examination
of serum levels of CA-125, CT scans of the abdomen and pelvis, and often with
repeat surgical or laparoscopic exploration. Unfortunately, most patients with
advanced ovarian cancer are not cured with front-line treatment and the
development of platinum resistant recurrent disease within the peritoneal cavity
is common.
FIGURE 3. OVARIAN CANCER MANAGEMENT
[OVARIAN CANCER MANAGEMENT CHART]
When patients are shown to have recurrent disease, second-line therapies
are typically administered. Although IP administration of several agents has
been evaluated, there are no drugs approved in the United States for use in this
manner. As mentioned above, IP cisplatin has been shown to be quite effective as
front-line therapy involving patients with small volume disease. Doxorubicin, an
anthracycline known to be effective in the treatment of patients with ovarian
cancer when administered intravenously, was evaluated for IP administration;
however, due to this contact toxicity of this compound and the complications
that were observed, the drug is considered to be inappropriate for IP use.
Valstar(TM) is also an anthracycline which, in comparison to doxorubicin,
is associated with considerably less contact toxicity. Anthra's Phase I/II study
of IP Valstar(TM) use demonstrated that the drug is safe and well tolerated at
high dose levels, and produced preliminary evidence of drug activity in a
heavily pre-treated group
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<PAGE> 44
of patients. Anthra is sponsoring a Phase III clinical trial in the United
States and Canada involving patients with small volume disease following
treatment with platinum and paclitaxel. The Company plans to launch a European
Phase III study of IP Valstar(TM) in fiscal year 1999. Data from these studies
is expected to support supplementary regulatory filings for this claim by fiscal
year 2001. If IP Valstar(TM) is approved by the FDA, Valstar(TM) can then be
marketed to the approximately 300 gynecological oncologists in the United States
and to a similar target audience in Europe. See "-- Valstar(TM): Licensing
Agreements."
VALSTAR(TM) IN PATIENTS WITH PROSTATE CANCER
In the United States, over 184,500 new cases of prostate cancer are
diagnosed each year and an estimated 39,200 deaths occurred from the disease in
1996. The risk of being diagnosed with prostate cancer increases with age and
the disease accounts for over 80% of the cancers diagnosed in men over the age
of 65. As a result of early detection screening procedures, including the use of
serum PSA (Prostate Specific Antigen) levels, approximately 60% of patients are
diagnosed when the disease is localized, that is, confined within the prostate
gland. Surgical prostatectomy (complete surgical removal of the prostate) was
traditionally considered by many experts to be the definitive treatment for
localized disease. However, due to the variable natural history of localized
prostate cancer and questions regarding the long-term efficacy of surgical
therapy, over the past five years, a strategy of "watchful waiting" has been
advocated by some experts. This approach entails careful observation of patients
with pathologically proven prostate cancer followed by definitive therapy when
the patient is considered to be at high risk of having progressive disease. As
depicted in Figure 4, a significant controversy regarding the optimal therapy
for localized prostate cancer has emerged, and the contrast of the foregoing
approaches has led a number of physicians and patients to seek alternative
therapies including external beam radiation therapy, brachytherapy (implantation
of radioactive seeds within the prostate gland), and cryotherapy (freezing of
the gland). Patients and physicians have found themselves at a crossroads having
to choose between either no treatment or a variety of forms of therapy
associated with significant side effects and compromised quality of life.
FIGURE 4. PROSTATE CANCER TREATMENT DILEMMA
[PROSTATE CANCER TREATMENT CHART]
Anthra and others have viewed this treatment dilemma as a possible
opportunity for treatment by way of a direct injection of therapeutic agents
within the prostate gland. In-vitro sensitivity studies have demonstrated
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<PAGE> 45
the activity of Valstar(TM) against prostate cancer and studies of direct
intraprostatic injection of Valstar(TM) in dogs has established the feasibility
of this approach. Anthra is working with its investigators to finalize the
protocol and begin patient enrollment in a Phase I study of intraprostatic
Valstar(TM) in fiscal year 1999. Subsequent studies may be initiated pending the
results of this Phase I study.
VALSTAR(TM): MARKET
The Company has researched the historical incidence of the diseases for
which the Company is currently conducting trials for Valstar(TM) based on
publicly available information and reports prepared for the Company by MedProbe,
including a report summarizing the results of a survey of 1.5% (124) of office
and hospital based urologists reported to be members of the AMA. Although
precise patient data is not published and can vary significantly from year to
year, based on the foregoing research and certain assumptions made by the
Company, including the estimated cost of treating each of the estimated number
of patients with Valstar(TM), the Company estimates that the potential market
for Valstar(TM) in the United States could approximate nearly $600 million per
annum. This estimate is based on the following historical data, assumptions and
estimates: an average of approximately 5,000 to 9,000 patients per year are
estimated as having been diagnosed with carcinoma in-situ that is refractory to
BCG therapy, and the Company's estimate of the cost of treatment of this type of
cancer utilizing Valstar(TM) is $7,200 per patient; an average of approximately
180,000 patients per year are estimated as having had a TURB procedure
performed, and the Company estimates that an adjunctive treatment utilizing
Valstar(TM) would cost $1,200 per patient; an average of approximately 10,000
patients per year are estimated as having been diagnosed with small volume
ovarian carcinoma refractory to front-line treatment, and the Company's estimate
of the cost of treatment of this type of cancer utilizing Valstar(TM) is $9,000
per patient; an average of approximately 184,500 patients per year historically
have been diagnosed with organ-confined prostatic carcinoma, and the Company's
estimate of the cost of treatment of this type of cancer utilizing Valstar(TM)
is $1,200 per patient; and the estimated potential market for Valstar(TM) of
approximately nearly $600 million per annum assumes 100% of these patients
utilizes Valstar(TM) with the foregoing costs of treatment. No assurance can be
given by the Company that this estimated market for Valstar(TM) will be
achieved.
VALSTAR(TM): DRUG MANUFACTURING AND FINISHING
Valstar(TM) is or has been manufactured in bulk powder form for the Company
by Gensia Sicor in Rho (Milan), Italy, and by Omnichem in Louvain-la-Neuve,
Belgium.
In June 1991, the Company entered into an Exclusive Supply Agreement with
Omnichem for the manufacture of Valstar(TM) Drug Substance, part of which
terminated according to its terms in 1994. Following such termination, Anthra
had the right to contract for the manufacture of Valstar(TM) Drug Substance with
any party of its choice. However, for a period of 10 years from the date of such
termination, Omnichem has a right of last refusal to supply Valstar(TM) Drug
Substance on the same terms, including price, as those offered by a third party
supplier.
In September 1997, the Company entered into a Supply Agreement with Gensia
Sicor for the manufacture of Valstar(TM) Drug Substance (the "Gensia Sicor
Agreement"). In accordance with the terms of the Gensia Sicor Agreement, Gensia
Sicor supplied to Anthra in 1997 certain validation batches of Valstar(TM) Drug
Substance in return for payments aggregating $570,000, for purposes of
facilitating Anthra's United States and European regulatory approval processes
for Valstar(TM). Following the attainment of regulatory approval for Valstar(TM)
for commercial sale, Gensia Sicor is obligated to manufacture and supply
Valstar(TM) Drug Substance for Anthra in accordance with the terms and
conditions of the Gensia Sicor Agreement. Anthra's price for Valstar(TM) Drug
Substance shall be as set forth in the Gensia Sicor Agreement. In addition,
Anthra has the obligation to make certain payments to Gensia Sicor upon the
attainment of certain milestones in connection with the regulatory approval
process for Valstar(TM). Subject to certain limitations, the term of the Gensia
Sicor Agreement expires 10 years from the date of the first regulatory approval
for Valstar(TM).
Gensia Sicor has submitted to the FDA, and will submit to the appropriate
regulatory authorities in Europe, its Drug Master File with respect to
Valstar(TM), which includes, among other information, the Drug
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<PAGE> 46
Establishment Registration Number, address of manufacturer, information
regarding the characterization of the drug substance, analytical specifications,
manufacturing flow sheet, production and process controls, evidence of chemical
structure, and characterization of reference standards and stability data.
Omnichem has submitted to the Company, which has in turn submitted to the FDA,
information similar to that which Gensia Sicor submitted to the FDA.
Release testing and stability testing of Valstar(TM) Drug Substance
produced by Omnichem has been performed under contract to Anthra by Ben Venue,
while release testing and stability testing of Valstar(TM) Drug Substance
produced by Gensia Sicor is performed by the manufacturer.
Valstar(TM) Drug Product is purchased from Ben Venue, and the Company is
currently negotiating the terms and conditions of a written supply agreement
with Ben Venue. Under the terms of its agreements with Medeva, Nycomed, and
Almirall, Anthra will be the exclusive provider of Valstar(TM) Drug Product for
post-approval marketing. See "-- Valstar(TM): Licensing Agreements."
VALSTAR(TM): COMPETITION
Anthra has designed its clinical and commercial development programs to
maximize the market competitiveness of Valstar(TM). At present, two therapeutic
agents are registered for IVe administration in the United States: the
chemotherapeutic drug thiotepa and the immunotherapeutic biological BCG.
Thiotepa is an older drug that is considered to have limited efficacy in
treatment of refractory bladder cancer. BCG is the definitive agent for
treatment of carcinoma in-situ, and is used for prophylactic IVe therapy to
supplement surgical resection of papillary tumors involving patients with
aggressive forms of the disease. Two other chemotherapeutic drugs marketed in
the United States, doxorubicin and mitomycin, are considered to be active when
administered by the IVe route, but neither is approved for IVe use by the FDA.
Clinical studies of immunotherapy with interferon administered intravesically,
Photofrin for use with photodynamic therapy, and the experimental oral agent
bropirimine, have demonstrated only limited utility for these agents in the
treatment of bladder cancer. Keyhole limpet hemocyanin is a developmental agent
that is being tested for activity against superficial bladder cancer as a
replacement for BCG.
Anthra's pivotal clinical studies in the United States were conducted using
patients who had failed to respond to or recurred following treatment with BCG.
At present, the majority of refractory patients are treated with surgical
cystectomy, although many patients refuse to undergo the procedure. For lack of
an appropriate alternate therapy, some urologists recommend bladder salvage IVe
therapy with non-approved agents. The FDA has designated Valstar(TM) an Orphan
Drug for treatment of refractory carcinoma in-situ. Thus, if approved,
Valstar(TM) will have protection from competition in this market for seven years
from the date of approval. See "Business -- Government Regulation."
If the results of Anthra's ongoing Phase III study of IVe Valstar(TM)
administered immediately following transurethral resection of the bladder are
positive, the data could provide the basis for a supplemental claim covering a
novel therapeutic approach. Although European studies have shown that mitomycin
is active in this clinical setting, this drug is not approved for IVe
administration in the United States. BCG is not a potential competitor for
peri-surgical therapy because administration of a live bacterial culture
immediately following surgery poses unacceptable risks.
The competitive environment for IVe Valstar(TM) in Europe is more
complicated because, in addition to BCG and thiotepa, mitomycin, epirubicin, and
doxorubicin are approved for IVe administration. None of these drugs, however,
has been rigorously evaluated in clinical studies for treatment of refractory
superficial bladder cancer and no agent has been registered based on a claim of
activity in a refractory patient population. Because the data from Anthra's
pivotal clinical trials involving patients with refractory disease in the United
States and Europe (which formed the basis for the Company's filing with the EMEA
for approval to market Valstar(TM) in Europe), comprise one of the largest
studies of a well-characterized refractory population, Anthra believes
Valstar(TM) will be competitive in the European market if approved.
Although several studies have shown that chemotherapeutic agents such as
cisplatin are active when administered intraperitoneally, no agent is approved
in either Europe or the United States for IP administra-
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<PAGE> 47
tion. Anthra views this as an opportunity for Valstar(TM). Several agents have
been approved for treatment of refractory ovarian cancer via systemic
administration, including paclitaxel (Taxol(R)), which was originally registered
for second line therapy but is used increasingly in first line combination
therapy with platinum agents, topotecan and tamoxifen. Taxol(R) is being
evaluated in GOG trials for IP administration. Altretamine, which is taken
orally, is marketed in the United States for treatment involving patients with
refractory ovarian carcinoma. Anthra's Phase III study is comparing the activity
of IP Valstar(TM) and oral altretamine involving patients who have failed to
respond following therapy with platinum compounds and paclitaxel.
VALSTAR(TM): PROPRIETARY POSITION
Patent protection for Valstar(TM) as a NME expired in 1994. Anthra's
management believes it can maintain a strong proprietary position for the drug
based on three platforms. First, it will seek Orphan Drug status for Valstar(TM)
in specific disease indications; FDA designated Valstar(TM) an Orphan Drug for
treatment of refractory carcinoma in-situ in 1994 and Anthra will apply for
designation in other appropriate indications. Second, Anthra has proprietary
know-how in the manufacture and formulation of the drug. Finally, Valstar(TM)
will receive protection from generic competition for five years following
approval under provisions of The Drug Price Competition and Patent Term
Restoration Act of 1984 as amended (the "Waxman-Hatch Act"). This protection
does not, however, apply to full NDAs. Moreover, Congress may consider
amendments to the Waxman-Hatch Act that could affect the requirements for and
timing of generic drug approvals. In Europe, drugs approved via the centralized
procedure, that is, through the EMEA, are granted protection from generic
competition for a ten year period from the date of approval.
Pursuant to an Agreement with Dana-Farber, dated November 6, 1990 (the
"Dana-Farber Agreement"), Anthra acquired exclusive licensing rights to
Valstar(TM) for both in and outside of the United States. Upon the termination
of such exclusive licensing rights in the United States under the Dana-Farber
Agreement, Dana-Farber would grant the Company non-exclusive licensing rights
for the remaining term of the agreement. Under the Dana-Farber Agreement, Anthra
was given the right to file an NDA or IND for Valstar(TM) and has the obligation
to use best efforts to commercially develop Valstar(TM). The Company is liable
to Dana-Farber for annual royalty fees based on net sales, if any, as defined in
the Dana-Farber Agreement. The Company agreed to pay Dana-Farber a minimum
royalty of $15,000 for each 12-month period commencing on the anniversary of an
NDA approval in the United States of Valstar(TM). The obligation to pay minimum
royalties shall cease upon the termination of the Dana-Farber Agreement. Absent
any default, the Dana-Farber Agreement terminates in July 1999 or upon 90 days
notice by Anthra.
VALSTAR(TM): LICENSING AGREEMENTS
Nycomed
In October 1997, the Company entered into an Exclusive License, Sale and
Distribution Agreement with Nycomed for the sale and distribution of Valstar(TM)
for three indications in Europe generally, excluding Spain and Portugal, but
including the Commonwealth of Independent States, Russia, parts of Eastern
Europe and, subject to certain conditions, an option with respect to China (the
"Nycomed Agreement"). At that time, Nycomed also purchased 300,000 shares of the
Company's Series D Convertible Preferred Stock for $4.5 million. The Nycomed
Agreement provides, subject to certain restrictions and limitations, for future
payments by Nycomed to Anthra aggregating up to $2 million based on the
achievement of certain milestones. In connection with these payments, Nycomed
will receive an option to purchase up to an aggregate of 66,666 shares, subject
to certain conditions, of either the Company's Series D Convertible Preferred
Stock or Common Stock at a price of $15 per share, which options will expire in
accordance with the Nycomed Agreement. Upon making a certain payment under the
Nycomed Agreement, subject to certain conditions, Nycomed will receive an
additional option to purchase that number of shares of either Anthra's Common
Stock or Series D Convertible Preferred Stock that can be purchased for $1
million at the price per share as determined by a formula based on the market
price of the shares at the time of exercise, which options will expire in
accordance with the Nycomed Agreement. Subject to certain conditions, the
Nycomed Agreement requires that Anthra prepare and file applications for
regulatory approval for Valstar(TM) for the three indications in the countries
within the Nycomed territory. Subject to certain conditions, the Nycomed
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<PAGE> 48
Agreement also provides for Anthra to supply Valstar(TM) Drug Product to Nycomed
at a price specified in the Nycomed Agreement. Unless earlier terminated
pursuant to its provisions, the Nycomed Agreement has an initial term of 10
years from the date in which the first major European Union member (other than
Spain and Portugal) grants the technical approvals for any indication for
Valstar(TM).
Medeva
In July 1997, the Company entered into the Medeva Agreement for the sale
and distribution of Valstar(TM) in the United States territory for two
indications. The Medeva Agreement provides for an initial non-refundable payment
of $8 million to Anthra which was paid on signing, and, subject to certain
restrictions and limitations, potential future milestone payments aggregating up
to approximately $15.1 million, of which the Company received $2.1 million in
September 1998, and potential future license fee payments aggregating up to
approximately $3 million (subject to certain offsets by Medeva for funds Medeva
may advance to Anthra for the continued development of Valstar(TM), costs
incurred by Medeva to bring certain actions for infringement, and certain losses
suffered by Medeva in third-party actions in connection with the sale of
Valstar(TM)), each based upon the achievement of certain milestones. In
consideration of, among other things, the aforementioned payments, Anthra has
granted to Medeva a nominal ownership interest in the proprietary rights to
Valstar(TM) as exploited in the United States and certain of the proceeds to the
Company resulting therefrom. Upon Anthra's achievement of a certain future
milestone under the Medeva Agreement and its receipt from Medeva of the payment
related thereto, Anthra will be obligated to make a $300,000 payment to the
financial intermediary that introduced Anthra to Medeva.
The Medeva Agreement also provides for the payment of royalties to the
Company based on the net sales of Valstar(TM) sold by Medeva. In addition, the
Company will supply Valstar(TM) Drug Product to Medeva at a price specified in
the Medeva Agreement.
The Medeva Agreement specifies that in the event the Company is unable to
complete the development of Valstar(TM) for certain indications due to lack of
funds, Medeva has the right to advance the necessary funds to the Company, which
advances may be set off by Medeva at a specified rate against its payments under
the Medeva Agreement, which would reduce payments to the Company thereunder. If
Anthra is unable to supply Valstar(TM) to Medeva on a timely basis as provided
in the Medeva Agreement, Anthra shall be obligated, subject to certain
restrictions and limitations, to pay liquidated damages to Medeva based on the
number of days that such supply is delayed up to a maximum amount of $450,000
per order. In the event that Anthra becomes obligated to pay Medeva liquidated
damages in a certain amount as specified in the Medeva Agreement, or is the
subject of a bankruptcy or similar proceeding, then Medeva shall have the right
to manufacture Valstar(TM) for the term of the Medeva Agreement. Subject to
certain exceptions as set forth in the Medeva Agreement, Medeva shall be limited
to the foregoing rights in the event Anthra is unable to supply Valstar(TM) on a
timely basis.
The Company may be entitled to receive additional payments for the ovarian
cancer indication, dependent upon the outcome of negotiations, which are
scheduled to be undertaken in 1998.
In the event that the Company has not obtained approval to market
Valstar(TM) in the United States for either the refractory carcinoma in-situ
indication or the papillary tumor indication by December 31, 2002, Medeva has
the right to require the Company to issue to it such number of shares of Common
Stock equal to 20% of the outstanding voting equity securities of the Company at
the time of its exercise of such right.
Subject to certain conditions, the Medeva Agreement requires Anthra to
prepare and file an NDA and sNDA for Valstar(TM) for two indications, and
subject to agreement with Medeva, a third indication.
Unless earlier terminated pursuant to its provisions, the Medeva Agreement
has a term of not less than 12 years from the date of the first commercial sale
of Valstar(TM) in the United States territory.
Almirall
In April 1997, the Company entered into the Almirall Agreement for the sale
and distribution of Valstar(TM) for all indications in Spain and Portugal. At
that time, Almirall also purchased 67,819 shares of
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Anthra's Series D Convertible Preferred Stock for $750,000. The Almirall
Agreement provides for an initial licensing payment by Almirall of $200,000
which was paid on signing, and future payments aggregating up to $400,000 upon
the achievement of certain milestones. The Almirall Agreement also provides for
Anthra to supply Valstar(TM) Drug Product to Almirall at a price specified in
the Almirall Agreement. The Almirall Agreement requires Anthra to conduct all
clinical trials required for the submission of applications for regulatory
approval for Valstar(TM) for at least two indications, and to file the
registrations in Spain and Portugal. Unless earlier terminated pursuant to its
provisions, the Almirall Agreement has an initial term of 10 years from the date
of the first commercial sale of Valstar(TM) in Spain.
Schering AG, Germany
In July 1996, the Company converted the Development Agreement into the
Support Agreement. The Support Agreement provides for a payment by Schering AG,
Germany to Anthra of $3.5 million in consideration of such conversion of the
Development Agreement and the issuance by Anthra to Schering AG, Germany of
200,000 shares of Anthra's Series D Convertible Preferred Stock, which was
subsequently converted by Schering AG, Germany into Common Stock. Such payment
was received by the Company and recorded as $2.2 million toward the purchase of
the 200,000 shares of Series D Convertible Preferred Stock and the remaining
$1.3 million of the payment as other revenue upon conversion to the Support
Agreement. The Support Agreement provides for royalties to be paid by Anthra to
Schering AG, Germany based on the net sales of Valstar(TM). Unless earlier
terminated pursuant to its provisions, the Support Agreement will expire seven
years after the date of the commercial launch of Valstar(TM) in the United
States, Germany or the United Kingdom.
BONEFOS(R): AN ORAL AGENT FOR OSTEOLYTIC COMPLICATIONS OF METASTATIC CANCER
Lytic bone disease is a medical condition that results from the
establishment and growth of metastases emanating from a variety of cancers,
including breast, lung, and multiple myeloma. The pathophysiologic basis of the
condition is the stimulation of a population of normal bone cells (osteoclasts)
relative to another population of bone cells (osteoblasts). Normal functioning
of bone depends on osteoclasts and osteoblasts acting in concert. Osteoclasts
mediate destruction of bone and osteoblasts are responsible for bone growth and
mineral production. The interplay between destruction and formation is integral
to bone re-modeling and various metabolic functions including calcium
regulation. When cancer metastasizes to bone, preferential stimulation of
osteoclasts leads to bone resorption and breakdown. As depicted in Figure 5,
lytic bone metastases are responsible for a clinical spectrum of diseases,
including establishment and progression of metastases leading to complications
including pain, pathological fracture and, in the terminal stages, hypercalcemia
(elevated blood calcium levels).
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FIGURE 5. BONEFOS(R) IN THE MANAGEMENT OF LYTIC BONE DISEASE
[OSTEOLYTIC BONE METASTASES GRAPH]
Bonefos(R) (clodronate) is an orally active bisphosphonate compound that
blocks bone resorption through osteoclast inhibition. High doses of
bisphosphonates are required to control lytic bone metastases resulting from
cancer. Due to significant gastrointestinal toxicity, most bisphosphonates
cannot be administered orally at high doses, so the products currently marketed
in the United States for the management of lytic bone metastases must be
administered intravenously. In contrast, clinical studies and more than 12 years
of marketed use in Europe have shown that Bonefos(R) is effective and well
tolerated when administered orally. Bonefos(R) is currently approved in 56
countries for the treatment of hypercalcemia and complications from lytic bone
disease.
Anthra has entered into the Bonefos Option Agreement and intends to
exercise its option thereunder to enter into the Bonefos Agreements, which
provide for the acquisition of development and marketing rights for Bonefos(R)
for the hypercalcemia and lytic bone disease indications in the United States.
See "-- Bonefos(R): Proprietary Position; -- Bonefos Option Agreement."
Bonefos(R) has been on the market in Europe and the rest of the world since
1985, with worldwide sales of approximately $150 million in 1997. Upon the
execution of the Bonefos Agreements pursuant to the Company's exercise of the
aforementioned option, Anthra's development program for Bonefos(R) will target
two potential claims for the drug: maintenance of normal blood calcium in
hypercalcemic patients; and treatment of lytic bone disease. Table II summarizes
this proposed program.
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TABLE II. SUMMARY OF PROPOSED BONEFOS(R) CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
INDICATION/TREATMENT TYPE RATIONALE STATUS
------------------------- ----------------------------------- -----------------------
<S> <C> <C>
Hypercalcemia/Oral - Approved in 56 countries for - United States Phase
treatment of hypercalcemia III study ongoing;
- Large safety and efficacy dossier Orphan Drug
designation
---------------------------------------------------------------------------------------
Lytic bone disease/Oral - Approved in 56 countries for - United States Phase
treatment of lytic bone disease III study proposed
- Large safety and efficacy dossier
---------------------------------------------------------------------------------------
</TABLE>
Once the Company exercises its option to enter into the Bonefos Agreements,
it will implement a Phase III randomized clinical trial to evaluate the efficacy
of Bonefos(R) taken daily orally for maintenance of normal blood calcium levels
in patients who have received acute treatment with intravenous drugs for
hypercalcemic complications of metastatic disease. The Company believes that
about 50% of patients who respond to acute treatment relapse with hypercalcemia
and require acute treatment again. A subsequent Phase III randomized study will
compare the activity of monthly treatment with pamidronate (Aredia(R))
administered as an intravenous infusion and daily treatment with Bonefos(R)
taken orally for controlling lytic bone disease in patients with metastatic lung
or breast cancer. Intravenous treatment with Aredia(R) has been shown to reduce
the incidence of skeletal complications (fractures, surgery, radiotherapy and
pain), and the Company's management views the availability of an effective oral
agent as a significant opportunity. As the Company intends to exercise its
option to enter into the Bonefos Agreements on or prior to September 30, 1998,
Anthra expects to launch these studies in fiscal year 1999.
BONEFOS(R): MARKET
The oncology market for bone resorption inhibitors is young and growing
rapidly. For example, United States sales of Aredia(R) nearly doubled to $200
million in 1997 following its approval for the wider claim of management of
lytic bone disease. Bonefos(R) is both less costly and more convenient to
administer than Aredia(R), which must be given as a three-hour or 24-hour
infusion in a supervised setting and costs, according to Company estimates,
approximately $1,500 per monthly treatment. In comparison, Bonefos(R), an orally
administered drug, is currently priced at $300 per month in Europe. If
Bonefos(R) is approved, it will be marketed to the 9,000 clinical oncologists in
the United States.
The Company has researched the historical incidence of hypercalcemia and
the types of lytic bone disease in which Bonefos(R) is active based on publicly
available information. Although precise patient data is not published and can
vary significantly from year to year, based on the foregoing research and
certain assumptions made by the Company, including the estimated costs of
utilizing Bonefos(R) for the treatment of these maladies using each of the
estimated number of patients, the Company estimates that the potential market
for Bonefos(R) in the United States could approximate nearly $900 million per
annum. This estimate is based on the following historical data, assumptions and
estimates. Between 500,000 to 700,000 people each year are reported to have died
from cancer, and of these people, between two-thirds to three-quarters are
reported to have developed bone metastases during the later stages of this
disease; based on the foregoing, the Company has assumed approximately 450,000
patients per year will develop bone metastases. The Company's estimate of the
cost of treatment of this malady utilizing Bonefos(R) is $1,825 per patient.
Hypercalcemia frequently occurs in the setting of widespread osteolytic bone
lesions, and the Company has thus assumed that an additional 50,000 patients per
year with bone metastases not receiving treatment will develop hypercalcemia.
The Company's estimate of the cost of treatment of this malady utilizing
Bonefos(R) is $900 per patient. The potential market for Bonefos(R) of
approximately nearly $900 million per annum assumes 100% of these patients
utilize Bonefos(R) with the foregoing costs of treatment. No assurance can be
given by the Company that this estimated market for Bonefos(R) will be achieved.
BONEFOS(R): COMPETITION
Two bisphosphonate compounds are marketed in the United States for
treatment of osteolytic complications due to malignancies: Aredia(R) is
considered the most active and has captured a significant and increasing
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share of this market; and Didronel(R) (etridronate) is used less because it has
been shown to inhibit bone regrowth as well as resorption. Both drugs require
intravenous administration for treatment of conditions associated with
malignancies. Two other bisphosphonates, tiludronate (Skelid(R)) and alendronate
(Fosamax(R)), are marketed in oral formulations for treatment of osteoporosis
and/or Paget's Disease, and several other compounds are in clinical development
for these non-malignant disease indications. If the companies developing and
marketing these drugs pursue additional claims for the hypercalcemia and/or
lytic bone disease indications, these products could be potential competitors to
Bonefos(R).
BONEFOS(R): PROPRIETARY POSITION
Several patents for use and formulation of Bonefos(R) have been granted,
and are due to expire commencing in 2010 and ending in 2014. Bonefos(R) has
received Orphan Drug designation for the treatment of osteolysis (hypercalcemia)
and, therefore, may have market exclusivity for seven years from the date of
approval of the NDA for this indication.
BONEFOS(R): BONEFOS OPTION AGREEMENT
In December 1997, the Company entered into a term sheet (the "Bonefos
Agreement in Principle") with Berlex and Leiras Oy, affiliates of Schering AG,
Germany to acquire the rights to develop and exclusively market Bonefos(R) for
the hypercalcemia and lytic bone disease indications in the United States, and
for the related rights to purchase its requirements of Bonefos(R). Upon
execution of the Bonefos Agreement in Principle, the Company made a
nonrefundable payment to Berlex of $250,000 which was recorded as a research and
development expense. The Bonefos Agreement in Principle expired pursuant to its
terms.
On July 6, 1998, the Company entered into the Bonefos Option Agreement and,
in connection therewith, made a nonrefundable payment of $200,000. The Bonefos
Option Agreement grants the Company the option to enter into the Bonefos
Agreements, both of which have been fully negotiated, and such option may be
exercised by the Company on or prior to September 30, 1998, accompanied by an
additional nonrefundable payment of $800,000. The Company intends to exercise
this option prior to or on September 30, 1998, and enter into the Bonefos
Agreements. The Bonefos Agreements provide for payment from the Company to
Leiras Oy of $2.5 million on or before December 31, 1998, in consideration of
the rights to develop and exclusively market Bonefos(R), on a royalty-free
basis, for the hypercalcemia and lytic bone disease indications in the United
States and for the related rights to purchase its requirements of Bonefos(R).
The Bonefos Agreements have a term of 15 years from the date of their execution.
The Bonefos Agreements further provide that, for a period after the
acceptance for filing of the NDA for the first indication for Bonefos(R), Berlex
will have the option to acquire from the Company the exclusive right to market
Bonefos(R) in the United States for the hypercalcemia and lytic bone disease
indications for (i) a $6 million payment to the Company upon FDA approval of the
NDA for the hypercalcemia indication, (ii) an obligation to make a $15 million
payment to the Company upon FDA approval of the NDA (or sNDA) for the lytic bone
disease indication, and (iii) an obligation to make royalty payments to the
Company. In addition, if Berlex exercises the option, it may elect to develop
Bonefos(R) in the United States for prevention of lytic bone disease. Upon the
approval of an sNDA for such indication, Berlex will make certain royalty
payments to the Company.
In the event Berlex does not exercise the aforementioned option, the
Bonefos Agreements provide that the Company would maintain the aforementioned
exclusive right to market Bonefos(R) in the United States. In such event, the
Bonefos Agreements provide for a supply obligation for a minimum of fifteen
years from the date of execution, by Leiras Oy, the Schering AG, Germany
affiliate that developed Bonefos(R) and currently manufactures Bonefos(R) for
sale in Europe, in which Leiras Oy would have the exclusive right and obligation
to supply the Company with Bonefos(R) for sale in the United States at a price
specified in the Bonefos Agreements.
Under the Bonefos Agreements, Anthra is required to seek FDA approval of
Bonefos(R) for the hypercalcemia and lytic bone disease indications, and will
lose its license rights if it fails to file an NDA for Bonefos(R) for at least
one indication by February 15, 2002, subject to certain conditions. The Company
must also meet certain financial conditions on an on-going basis or the Bonefos
Agreements may be terminated.
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GOVERNMENT REGULATION
The research, testing, manufacturing, labeling, marketing, distribution and
advertising of pharmaceutical products, such as the Company's proposed products
are subject to extensive regulation by governmental regulatory authorities in
the United States and other countries. The drug development and approval process
is generally lengthy, expensive and subject to unanticipated delays. The FDA and
comparable agencies in foreign countries impose substantial requirements on the
introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing requirements, sampling activities and other
costly and time-consuming compliance procedures. A new drug may not be marketed
in the United States until it has undergone rigorous testing and has been
approved by the FDA. The drug may then be marketed only for the specific
indications, uses, formulations, dosage forms and strengths approved by the FDA.
Similar requirements are imposed by foreign regulators upon the marketing of a
new drug in their respective countries. Satisfaction of such regulatory
requirements, which includes demonstrating to the satisfaction of the FDA that
the relevant product is both safe and effective, typically takes several years
or more depending upon the type, complexity and novelty of the product, and
requires the expenditure of substantial resources. Preclinical studies must be
conducted in conformance with the FDA's current Good Laboratory Practice
("cGLP") regulations. The Company's compounds require extensive clinical trials
and FDA review as new drugs. Clinical trials are rigorously regulated and must
meet requirements for FDA review and oversight, and requirements under current
Good Clinical Practice ("cGCP") guidelines. There can be no assurance that the
Company will not encounter problems in clinical trials which would cause the
Company, the FDA or another relevant regulatory body to delay or suspend
clinical trials. Any such delay or suspension could have a material adverse
effect on the Company's business, financial condition and results of operations.
The steps required before a drug may be marketed in the United States
include: (i) preclinical laboratory and animal tests; (ii) submission to the FDA
of an application for an IND exemption, which must become effective before human
clinical trials may commence; (iii) human clinical trials to establish the
safety and efficacy of the drug; (iv) submission of a detailed NDA to the FDA;
and (v) FDA approval of the NDA. In addition to obtaining FDA approval for each
product, each establishment where the drug is to be manufactured must be
registered with the FDA. Manufacturing establishments must comply with current
Good Manufacturing Practice ("cGMP") regulations and are subject to periodic
inspections by the FDA. Foreign manufacturing establishments manufacturing drugs
intended for sale in the United States must comply with the same cGMP
regulations and registration requirements as domestic establishments and are
subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the metabolic and pharmacologic activity and potential
safety and efficacy of the product, including acute and chronic toxicity studies
and others. Preclinical tests must be conducted by laboratories that comply with
FDA regulations regarding cGLP. The results of preclinical tests are submitted
to the FDA as part of an IND, which must become effective before the sponsor may
conduct clinical trials in human subjects. Unless the FDA objects to an IND, the
IND becomes effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization of the
commencement of clinical trials. In addition, either before or after approval of
an IND, the FDA can issue a clinical hold requiring that clinical trials be
stopped, either temporarily or permanently.
Clinical trials involve the administration of the investigational drug to
patients. Every clinical trial must be conducted under the review and oversight
of an institutional review board ("IRB") at each institution participating in
the trial. The IRB evaluates, among other things, ethical factors, the safety of
human subjects and the possible liability of the institution. The IRB has
continuing oversight of the protocols. There is no assurance that the IRB will
approve a study or not require protocol changes. Clinical trials are conducted
by qualified investigators (usually physicians within medical institutions)
selected by the sponsor of the trial to supervise the administration of the drug
and ensure that the investigations are conducted in accordance with FDA
regulations, including the general investigational plan and protocols contained
in the IND. The sponsor also has an independent obligation to monitor the trials
and ensure that all applicable legal requirements are satisfied, including
requirements to comply with FDA recordkeeping and safety reporting regulations.
Each protocol must be submitted to the FDA as part of the IND. The FDA's review
of a protocol, however, does not mean that the study will be regarded as showing
safety or effectiveness. Clinical trials typically are
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conducted in three phases, which generally are conducted sequentially, but which
may overlap. Clinical trials test for efficacy and safety, side effects, dosage,
tolerance, metabolism and clinical pharmacology. Phase I tests involve the
initial introduction of the drug to a small group of subjects, often healthy
volunteers, to test for safety, dosage tolerance, pharmacology and metabolism.
Phase I/II studies are early studies designed to evaluate safety and preliminary
activity of drugs in patients. Phase II trials involve a larger but still
limited patient population to determine the efficacy of the drug for specific
indications, to determine optimal dosage and to identify possible side effects
and safety risks. If a drug appears to be safe and efficacious in Phase II
evaluations, larger-scale Phase III trials are undertaken to evaluate the safety
and effectiveness of the drug, usually, though not necessarily, in comparison
with a placebo or an existing treatment. Certain provisions of the FDAMA have
clarified provisions of prior law governing clinical testing. For example, data
from one well-controlled Phase III clinical trial, together with confirmatory
evidence, may, at the discretion of the FDA, be deemed to establish
effectiveness, but the FDA is not required to depart from its usual requirement
of two Phase III trials in any particular case. Another provision of the FDAMA
establishes requirements regarding when the FDA must begin action in clinical
trial applications. There can be no assurance, however, that Phase I, Phase II
or Phase III testing will be completed successfully within any specified time
period, if at all. Furthermore, the FDA may suspend clinical trials at any time
if it decides that patients are being exposed to a significant health risk.
The results of the preclinical studies and clinical trials are submitted to
the FDA as part of an NDA for approval of the marketing of a drug for a specific
indication. The NDA also includes information pertaining to the chemistry,
formulation and manufacture of the drug and each component of the final product.
The NDA review process takes from one to two years on average to complete,
although reviews of treatments for cancer and other life-threatening diseases
may be accelerated. However, the process may take substantially longer if the
FDA has questions or concerns about a product. In general, the FDA requires at
least two adequate and well-controlled clinical studies demonstrating efficacy
in order to approve an NDA. The FDA may, however, request additional
information, such as long-term toxicity studies or other studies relating to
product safety or effectiveness. Notwithstanding the submission of such data,
the FDA ultimately may decide that the NDA does not satisfy its regulatory
criteria for approval. Finally, the FDA may require additional clinical tests
following NDA approval. There can be no assurance that the drugs the Company is
seeking to develop will prove to be safe and effective in treating or preventing
cancer. The development of such drugs will require the commitment of substantial
resources to conduct the preclinical studies and clinical trials necessary to
bring such compounds to market. Drug research and development by its nature is
uncertain. There is a risk of delay or failure at any stage, and the time
required and cost involved in successfully accomplishing the Company's
objectives cannot be predicted. Actual drug research and development costs could
exceed budgeted amounts, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The FDA has issued regulations intended to expedite the development,
evaluation, approval and marketing of new therapeutic products to treat
life-threatening and severely debilitating illnesses for which no satisfactory
alternative therapies exist. These regulations provide for early consultation
between the sponsor and the FDA in the design of both preclinical studies and
clinical trials. There can be no assurance that any products the Company may
develop will be eligible for evaluation by the FDA under these regulations. In
addition, there can be no assurance that any products, if eligible, will be
approved for marketing at all or, if approved for marketing, will be approved
for marketing sooner than would be traditionally expected. Regulatory approval
granted under these regulations may be restricted by the FDA as necessary to
ensure the safe use of the drug. In addition, post-marketing clinical studies
are required, and, if such drugs do not perform satisfactorily in such
post-marketing clinical studies, such drugs would likely be required to be
withdrawn from the market. The FDA also requires prior review of promotional
materials for drugs approved under these provisions. The FDAMA has also provided
a mechanism for identifying breakthrough drugs and for streamlining the
regulatory process. No assurance can be given that any of the Company's products
will qualify for the relevant provisions under the FDAMA with respect to such
mechanism.
The Prescription Drug User Fee Act of 1992, as amended, was enacted to
expedite FDA review and approval of new drugs by providing the FDA additional
funds through the imposition of user fees on sponsor companies of prescription
drugs. Such Act imposes three kinds of user fees: (i) a one-time fee for each
single-source prescription drug application submitted on or after September 1,
1992; (ii) an annual fee for each
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establishment that produces single-source prescription drugs; and (iii) an
annual fee for each single-source prescription drug product marketed. This
program was renewed by the FDAMA.
Anthra cannot predict when, if ever, it might submit for regulatory review
additional compounds currently under development or additional claims for
existing compounds. Once the Company submits its potential products for review,
there can be no assurance that FDA or other regulatory approvals for any
pharmaceutical products developed by Anthra will be granted on a timely basis,
if at all. The FDA and comparable agencies in foreign countries impose
substantial requirements on the introduction of new pharmaceutical products
through lengthy and detailed preclinical and clinical testing procedures, sample
testing and other costly and time-consuming compliance procedures. Clinical
trials are rigorously regulated. A new drug may not be marketed in the United
States until it has been approved by the FDA or marketed in foreign countries
until it has been approved by the appropriate regulatory agencies for such
countries. There can be no assurance that the Company will not encounter delays
or rejections during any approval process, or that the FDA or any other
applicable regulatory agency will not make policy changes during the period of
product development and FDA or other applicable regulatory agency regulatory
review of any submitted NDA or other appropriate documentation. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if regulatory approval is obtained, the labeling would be limited as to the
indicated uses for which the product may be promoted or marketed. A marketed
product, its manufacturer and the facilities in which it is manufactured are
subject to continual review and periodic inspections. If marketing approval is
granted, the Company would be required to comply with FDA or other applicable
regulatory agency requirements for manufacturing, labeling, advertising, record
keeping and reporting of adverse experiences and other information. Even after
approval, marketed products are subject to continuing FDA review, and they can
be withdrawn from the market, or new limitations placed on their labeling,
marketing, distribution, manufacture, or use, if new side effects are discovered
or if the products are shown to be less effective than previously believed. In
addition, the Company would be required to comply with Federal and state
anti-kickback and other health care fraud and abuse laws, and similar foreign
laws, that pertain to the marketing of pharmaceuticals. Failure to comply with
regulatory requirements and other factors could subject Anthra to regulatory or
judicial enforcement actions, including, but not limited to, product recalls or
seizures, injunctions, withdrawals of product from the market, civil penalties,
criminal prosecution, refusals to approve new products and withdrawals of
existing approvals, as well as enhanced product liability exposure, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Among the requirements for FDA product approval is that manufacturers
conform to the FDA's cGMP standards, which also must be observed at all times
following approval. An NDA will not be approved until the manufacturing
facilities have been inspected and found to be in compliance with cGMP
standards, and approvals can be withdrawn and other actions taken to prevent
continued manufacturing and distribution if a facility is found to be out of
compliance with cGMP standards or with the manufacturing provisions of the NDA
after approval. Accordingly, manufacturers must continue to expend time, money
and effort in production, record keeping and quality control to ensure
compliance with cGMP standards. Failure to so comply subjects the manufacturer
to possible FDA action, such as the suspension of manufacturing or seizure of
the product. The FDA may also request a voluntary recall of a product. Foreign
regulators also impose restrictions on drug manufacturers.
Pursuant to the Orphan Drug Act, the FDA may designate a drug intended to
treat a "rare disease or condition" as an Orphan Drug. A "rare disease or
condition" is one which affects less than 200,000 people in the United States,
or which affects more than 200,000 people but for which the cost of development
and distribution of a drug for treatment of such disease or condition will not
be recovered from sales of the drug in the United States. Upon approval of an
NDA for an Orphan Drug, such drug may be eligible for exclusive marketing rights
in the United States for designated and approved indications for seven years
from the date of approval by the FDA for such indication. Orphan Drugs may also
be eligible for Federal income tax credits for certain clinical trial expenses.
Orphan Drug status for Valstar(TM) for the treatment of carcinoma in-situ
of the bladder and for Bonefos(R) for the treatment of osteolytic bone
metastases has been granted. The Company may receive marketing
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exclusivity for an Orphan Drug only if it is the sponsor of the first NDA
approved for the drug for an indication for which the drug was designated as an
Orphan Drug prior to the approval of such NDA. Therefore, unlike patent
protection, Orphan Drug status does not prevent other manufacturers from
attempting to develop the drug for the designated indication or from obtaining
NDA approval prior to approval of the Company's NDA. If another sponsor's NDA
for the same drug and the same indication is approved first, that sponsor is
entitled to exclusive marketing rights if that sponsor has received Orphan Drug
designation for the drug. In that case, the FDA would be prohibited from
approving the Company's application to market the product for the relevant
indication for a period of seven years. If another sponsor's NDA for the same
drug and the same indication is approved first, but that drug has not been
designated as an Orphan Drug, the FDA would still be permitted to approve the
Company's NDA without the exclusivity provided by Orphan Drug status. Even if
the Company did receive Orphan Drug exclusivity, that does not prohibit the FDA
from approving the same drug manufactured by another sponsor if it is labeled
for a different indication (even if it can be used for the same indication) or
if it is clinically superior to the Orphan Drug in any respect. Moreover,
amendment of the Orphan Drug Act by the United States Congress and
reinterpretation by the FDA are frequently discussed. Therefore, there can be no
assurance as to the precise scope of protection that may be afforded by Orphan
Drug status in the future, or that the current level of exclusivity will remain
in effect. Failure to receive such exclusivity could have an adverse effect on
the Company's business, financial condition and results of operations.
In most cases, pharmaceutical companies rely on patents to provide market
exclusivity for the periods covered by the patents. See "Business-Products and
Markets." In the United States, the Waxman-Hatch Act permits an extension of
patents in certain cases to compensate for patent time expended during clinical
development and FDA review of a drug. In addition, the Waxman-Hatch Act
establishes a period of market exclusivity, independent of any patents, during
which the FDA may not accept or approve abbreviated applications for generic
versions of the drug from other sponsors, although the FDA may accept and
approve subsequent full NDAs for the drug. This applicable period of market
exclusivity for a drug containing an active ingredient not previously approved
is five years. There is no assurance that all or any of the Company's products,
if approved, will receive market exclusivity under the Waxman-Hatch Act. Failure
to receive such exclusivity could have an adverse effect on the Company's
business, financial condition and results of operations.
Health care reform legislation, if enacted, could result in significant
changes in the financing and regulation of the health care business. In
addition, legislation affecting coverage and reimbursement under Medicare,
Medicaid and other government medical assistance programs has been enacted from
time to time. The Company is unable to predict whether such legislation will be
enacted in the future or, if enacted, the effect of such legislation on the
future operation of the Company's business. Changes adversely affecting drug
pricing, drug costs reimbursement, and prescription benefits, among other
changes, could have a materially adverse effect on the Company's business,
financial condition and results of operations.
In 1993, legislation was adopted which established a very new and amended
system for the registration of medicinal products in the EU. One purpose of this
system is to provide an alternative to the essentially separate national
approval systems among EU members, a major obstacle to harmonization. One of the
most significant features of this new system is the establishment of EMEA. Under
this new system, an application for marketing authorization, broadly speaking,
may be submitted at either a centralized, a decentralized or a national level.
The centralized procedure is administered by the EMEA; this procedure is
mandatory for the approval of biotechnology products and available at the
applicant's option for other products. The centralized procedure provides for
the first time in the EU the ability to obtain marketing authorization that is
valid in all EU member states ("Member States"). The Company has chosen and has
been accepted for the centralized review procedure for its European regulatory
filings. However, there can be no assurance that this strategy will secure
regulatory approvals or the applications submitted by the Company. As of January
1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the centralized
procedure, under the so-called "decentralized procedure." The decentralized
procedure became mandatory on January 1, 1998. The decentralized procedure
creates a new system for mutual recognition of national approvals and
establishes procedures for coordinated EU action on product suspensions and
withdrawals. Under this procedure, the holder of a national marketing
authorization for which mutual
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recognition is sought may submit an application to one or more Member States,
certifying that identical dossiers are being submitted to all Member States for
which recognition is sought. Within 90 days of receiving the application, each
Member State must decide whether to recognize the approval. The procedure
encourages Member States to work with applicants and other regulatory
authorities to resolve disputes concerning mutual recognition. If such disputes
cannot be resolved within the 90-day period, the application will be subject to
a binding arbitration procedure.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains general liability insurance, including clinical trials
coverage with coverage limits of $1 million per occurrence, an annual general
aggregate maximum of $1 million, and an annual products aggregate maximum of $3
million, with advertising and personal injury coverage of $1 million, there can
be no assurance that liability claims will not exceed such insurance coverage
limits, which could have a material adverse effect on the Company's business,
financial condition and results of operations, or that such insurance will
continue to be available to the Company on commercially reasonable terms, if at
all. The Company is in the process of increasing the annual products aggregate
maximum to $5 million; however, there can be no assurance given that the Company
will be able to obtain such increase on commercially reasonable terms, if at
all.
EMPLOYEES
At September 1, 1998, the Company employed 33 persons, with the majority
involved in clinical research activities. There are 26 employees located at the
Company's Princeton, New Jersey offices, and 7 in the United Kingdom office.
None of the Company's employees is represented by a labor union, and the
Company considers its relations with its employees to be positive. The Company
has experienced no work stoppages.
Many consultants are used in support of the Company's research and
development efforts.
Competition for technical personnel in the Company's industry is intense.
To date, the Company has been successful in recruiting and retaining qualified
personnel, but there can be no assurance that it will continue to be as
successful in the future. The Company's future success depends in part on its
continued ability to hire, assimilate and retain qualified personnel, including
through the issuance of its equity which would be dilutive to the Company's
shareholders.
PROPERTIES
In July 1997, the Company executed a sublease for the Company's principal
administrative and clinical offices of approximately 5,560 square feet located
in the Carnegie Center in Princeton, New Jersey. The monthly rent at the
Carnegie Center is $9,359, and the sublease expires on November 30, 1999. The
Company is currently preparing to relocate its clinical offices in Princeton,
New Jersey and in the interim may lease some space in addition to its Carnegie
Center location on a temporary basis.
The Company also leases approximately 1,635 square feet of office space for
its Anthra UK clinical offices at The Malt House in Princes Risborough, England.
The quarterly rent at The Malt House is L5,535 ($9,299 using a conversion factor
of 1.68 dollars for 1 British pound), and the lease expires in December 2000.
The Company believes that its facilities are adequate for its operations as
currently conducted and should be sufficient for the foreseeable future.
LEGAL PROCEEDINGS
As of the date of this Prospectus, there are no material legal proceedings
to which the Company is a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
current Directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Mervyn Israel 65 Chairman of the Board and Secretary
Michael C. Walker 50 President, Chief Executive Officer and Director
Paul G. Gooding 63 Director
William Engbers(1) 55 Director
Karen Krumeich 44 Chief Financial Officer, Vice President - Finance
Robert Lippert 41 Senior Vice President - Marketing
Richard Onyett 51 Senior Vice President - Corporate Development
Allen L. Thunberg 51 Vice President - Pre-Clinical Development
Denise Webber 38 Vice President - Clinical and Regulatory Operations
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
The business experience of each of the Directors and executive officers of
the Company is set forth below.
Mervyn Israel, Ph.D., Chairman of the Board and Secretary of Anthra since
1985, co-founded Anthra with Mr. Walker and is the inventor of Valstar(TM) and
numerous other anticancer drugs. Dr. Israel has spent over 40 years in the area
of cancer pharmacology, experimental therapeutics, and drug development.
Following the award of a Ph.D. degree in 1959 from the University of
Pennsylvania and postdoctoral appointments at the University of Michigan and
Harvard University, he was affiliated for many years with Dana-Farber, rising to
become Associate Chief for Drug Development in the Division of Pharmacology.
Since 1983, Dr. Israel has been associated with the University of Tennessee,
Memphis Health Science Center, where he holds joint appointments as Professor of
Pharmacology in the College of Medicine and Professor of Pharmaceutical Sciences
in the College of Pharmacy. Among other areas, Dr. Israel is an internationally
recognized expert on the chemistry and pharmacology of anthracycline anticancer
drugs.
Michael C. Walker has worked in the pharmaceutical industry for more than
25 years, starting in sales with Eli Lilly & Co. In the mid-1970's, Mr. Walker
joined Merck & Co., first managing two of Merck's primary products, then moving
into Corporate Development and Licensing. In the latter capacity, Mr. Walker was
instrumental in creating Merck's joint venture with Astra Pharmaceuticals. Mr.
Walker left Merck in 1983 to become Chief Executive Officer of Polydex
Pharmaceuticals in Toronto, Ontario, where he had the opportunity to apply his
own market expansion strategies to an existing small business. He also has
worked as a consultant to young pharmaceutical companies, specializing in
developing strategic solutions for the commercialization of both traditional and
biopharmaceutical products. Mr. Walker co-founded Anthra in 1985 and has been
President, Chief Executive Officer and a Director of Anthra since 1985. Mr.
Walker received a M.B.A. from Harvard University in 1973.
Paul G. Gooding, M.B., B.S., a Director of the Company since 1993, works
closely with Anthra's Clinical Development and Regulatory Affairs group, as well
as with the Company's Commercial Development team. Dr. Gooding has more than 30
years experience working in four multinational pharmaceutical companies,
primarily as Director of Clinical Research. From 1988 to 1993, Dr. Gooding was
employed by Sankyo U.S.A. Corporation, a subsidiary of Sankyo Company, Ltd.
(Japan), where he was responsible for the establishment and staffing of the
Medical Department and the supervision of the Medical Affairs, Clinical Research
and Regulatory Affairs Departments. At Sankyo U.S.A. Corporation, Dr. Gooding
held the position of Vice President and Medical Director. Dr. Gooding retired
from Sankyo U.S.A. Corporation in 1993, and since then has served as a
consultant to various companies in the pharmaceutical and scientific arena. In
addition to his considerable experience in developing clinical leads into
approved drugs, he has directed product acquisitions programs and managed in-
and out-licensing arrangements.
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William Engbers was elected a Director of Anthra in December 1997. Mr.
Engbers joined Allstate Insurance Company in 1989, where he is currently
Director of Venture Capital in Allstate's private equity group. Before that, he
was Chairman of the Board of Plant Genetics Inc. Mr. Engbers has been a venture
capitalist since 1981 and has served as a Director or Chairman of over two dozen
venture capital sponsored companies. He is currently a Director of LaJolla
Pharmaceuticals Company and DM Management, Inc. (both public companies), and
seven privately-held corporations.
Karen Krumeich, Chief Financial Officer and Vice President -- Finance,
joined Anthra in 1998, and is responsible for all accounting, finance and
treasury functions. Ms. Krumeich has worked in the healthcare industry for over
20 years specializing in finance and administration. Prior to joining Anthra,
she worked for Bristol-Myers Squibb from 1995 to 1998 as Director of Health
Systems Management in the Worldwide Franchise Management division, responsible
for international strategic business planning and managed care marketing. Ms.
Krumeich has an extensive background in the start-up and the development of
financial and cost control systems from her experience as Chief Financial
Officer of a pharmacy benefits management company, Pharmacy Direct Network, from
1994 to 1995, and as Vice President of Finance for the pharmacy division of
GranCare, a national long-term care and home healthcare company, from 1991 to
1994. Ms. Krumeich has a B.S. in Pharmacy from the University of Toledo, with
post graduate studies in accounting and finance.
Robert Lippert joined Anthra as Senior Vice President -- Marketing in 1998,
after 23 years of diversified pharmaceutical/healthcare experience. Mr. Lippert
will be responsible for all commercial operations at Anthra including the launch
of Valstar(TM). He was previously employed by Medeva Pharmaceuticals from 1997
to 1998 as Vice President Institutional Business, and from 1993 to 1997 as
Senior Vice President Marketing and Business Development at International
Medication Systems, Limited, a division of Medeva PLC. Prior to Medeva, Mr.
Lippert was employed by Ethex/KV Pharmaceuticals from 1991 to 1993, and by
Ohmeda Pharmaceuticals (Baxter) from 1984 to 1991, where he held numerous senior
positions in Business Development, Marketing, and Finance. Mr. Lippert received
his B.A. in Animal Biology and History from the University of Wisconsin. He also
holds a B.B.A. in Business Administration/Finance from the University of
Wisconsin, Milwaukee, and an M.B.A. in Marketing from Marquette University.
Richard Onyett has worked in the pharmaceutical industry for over 25 years
as a marketing and business development specialist. From 1970 to 1981, he worked
in overseas country management and strategic marketing at ICI Pharmaceuticals,
where he managed several major product ranges. He then worked for SmithKline and
French Laboratories from 1981 to 1990, initially as head of new products and
subsequently in charge of business development. In 1990, he was a founder of The
Kite Organization, a healthcare consultancy. Since 1992, his consultancy firm,
Camas Partners, has provided commercial development services to a number of
medical research institutions and biopharmaceutical companies in the United
States and Europe. All existing contractual obligations of Camas Partners have
now been completed. In 1995, Mr. Onyett founded and became a director of Cambrio
Group plc, and he is a director of Rio Pharmaceuticals Limited. In September
1997, Mr. Onyett joined Anthra as Senior Vice President -- Corporate Development
with primary responsibility for the Company's corporate development. In addition
to his corporate development responsibilities, he manages Anthra's U.K.
operations, including clinical development. Mr. Onyett has a B.Sc. from the
University of Nottingham and an M.Sc. in Virology from the University of
Birmingham.
Allen L. Thunberg, Ph.D., Vice President -- Pre-Clinical Development, is
responsible for all aspects of pre-clinical research and development and
manufacturing at Anthra. He joined the Life Sciences Group at Eastman Kodak in
1977, where he worked initially in clinical diagnostics and later in
pharmaceuticals. In 1987 he transferred to Eastman Pharmaceuticals, a newly
formed Division of Eastman Kodak, where he established discovery programs in
immunology and targeted therapy, and negotiated and managed collaborative
research and development programs with several biotechnology companies. In 1988,
following Kodak's acquisition of Sterling Drug, he established and managed a
research and development department with broad-based discovery and development
responsibilities, and continued to serve as technical/business liaison for six
collaborative biotechnology programs. Following the sale of Sterling Drug to
Sanofi in 1994, Dr. Thunberg worked as biopharmaceutical consultant, then joined
Anthra in 1996. Dr. Thunberg received his B.S. from North Dakota State
University and his Ph.D. from The Rockefeller University, and completed
post-doctoral studies at The Johns Hopkins University.
57
<PAGE> 60
Denise Webber, Vice President -- Clinical and Regulatory Operations, is
responsible for the oversight of the clinical trials and regulatory approval
processes and for the clinical and technical support of Marketing and Sales for
the commercialization of Anthra's therapeutic products. Ms. Webber was appointed
to her current position in September 1998. She was Vice President -- Medical
Affairs of the Company from April 1998 until September 1998 and the Director of
Clinical and Data Operations of Anthra, responsible for Anthra's clinical
studies, from 1994 to 1998. Ms. Webber has seven years experience in the design
and management of clinical trials of oncology products. Prior to joining Anthra
in 1994, she was Manager for Medical Affairs at Cytogen Corp. from 1992 to 1994.
Ms. Webber, a Certified Nuclear Medicine Technologist, has a B.S. from Loras
College.
RECENT CHANGES IN THE CONSTITUTION OF THE BOARD OF DIRECTORS
Membership on the Board of Directors has been reduced to four, down from
seven when Amendment No. 3 to the Registration Statement of which this
Prospectus forms a part was filed in May 1998. In the case of Messrs. Dow and
Schiller, neither person assigned in his letter of resignation a specific reason
for his resignation. The Company understands that in each case the reason was
not Company-specific, nor the result of a dispute relating to the Company's
business directions. The Company knows of no plans by either Messrs. Dow or
Schiller or their affiliates to dispose in the near term his or their stock in
the Company or otherwise to diminish their support for the Company and its
prospects. In the case of Dr. Gulfo, who elected to pursue opportunities with an
early stage firm, he has agreed to continue as a consultant during a transition
period, including rendering services to assist the Company in attempting to
secure final NDA approval/labeling and obtain approval of the marketing
materials for a launch of Valstar(TM), and identifying a suitable replacement
and providing transition training.
KEY EMPLOYEE
The Company has identified the following additional individual as a key
employee.
Philip Wood, FFPM, Medical Director -- Europe, is responsible for the drug
development program of the Company in Europe. Dr. Wood obtained his medical
degree in Britain and worked in several British hospitals, gaining broad
experience in general medicine and developing his interests in pediatrics and
obstetrics, before entering general medical practice in the south of England. In
1975, he entered the pharmaceutical industry and since then has undertaken posts
of increasing responsibility, including Medical Director for Bristol-Myers
Squibb UK and Medical Director for Wellcome UK. Dr. Wood is a Member of the
Royal College of General Practitioners and a Fellow of the Faculty of
Pharmaceutical Medicine. He has experience in all phases of drug development in
many different therapeutic fields. He joined Anthra in 1996. Dr. Wood has an
M.B., B. Ch. from the University of Wales, and has received several medical and
pharmaceutical graduate degrees.
CONSULTANT
Joseph V. Gulfo, M.D. has spent the past nine years in clinical drug
development. As Assistant Medical Director at Oxford Research International from
January 1989 to November 1990, he had responsibility for clinical development
programs for both prescription and over-the-counter drugs. He directed the
successful NDA filing for Actinex (a topical antineoplastic), a successful
Orphan Drug filing, and two prescription to over-the-counter switches. He joined
Cytogen Corp. in 1990 as Director of Clinical Investigations, where his primary
responsibility was management and coordination of all phases of clinical
development of novel in vivo diagnostic and immunotherapeutic products for
cancer detection and treatment. Dr. Gulfo was responsible for the development of
ProstaScint(R), an approved in vivo immunodiagnostic agent for patients with
prostate cancer. In mid-1994, Dr. Gulfo was appointed Vice President -- Clinical
Trials at Anthra. From April 1997 until September 1998, he was Executive Vice
President and Chief Operating Officer of Anthra, and from December 1997 until
September 1998, he served as a Director of the Company. Dr. Gulfo has agreed to
provide certain consulting services to the Company during a transition period,
including assisting the Company in attempting to secure final NDA
approval/labeling and approved marketing materials for a launch of
58
<PAGE> 61
Valstar(TM) and identifying a suitable replacement and providing transition
training. Dr. Gulfo received his B.S. and M.B.A. from Seton Hall University and
M.D. from the University of Medicine & Dentistry -- New Jersey.
RESEARCH SUPPORT
Because Anthra focuses on clinical and commercial development of drug
candidates discovered and tested by third parties, the Company does not have to
invest heavily in the infrastructure required to support pre-clinical research
and development and manufacturing. Thus, the Company's non-clinical research and
development activities concentrate on supporting regulatory submissions with
data on toxicology, manufacturing, formulation, and stability testing. These
studies are contracted to well established specialist research organizations and
managed by Dr. Thunberg.
Anthra has a long-term relationship with the University of Tennessee
whereby Anthra provides a monthly contribution of $10,100 to support research in
the laboratory of Dr. Mervyn Israel. This support is in the form of an
unrestricted gift from the Company. See "Certain Relationships and Related
Transactions."
SCIENTIFIC ADVISORY BOARD
Anthra's Scientific Advisory Board is comprised of internationally
recognized clinical researchers in urology and oncology. This Board advises
Anthra's management on strategic issues related to the Company's clinical
development programs.
Robert R. Bahnson, M.D. is Louis Levy Professor of Cancer and Director,
Division of Urology at Ohio State University. Prior to moving to Ohio State in
1996, he spent more than 15 years in clinical research in urology and urologic
oncology at the University of Pittsburgh, Washington University (St. Louis,
Missouri) and Northwestern University. He is a member of the Urologic Advisory
Council of the American College of Surgeons and has previously served as a
member of the Genitourinary Steering Committee of ECOG, the Editorial Committee
of the Journal of Urology, and the Research Committee of the American Urological
Association. He was honored with a listing in the 1996-1997 edition of Best
Doctors in America: Northeast Region. Dr. Bahnson has a B.A. from Carleton
College, a B.S. from the University of South Dakota, and an M.D. from Tufts
University.
H. Barton Grossman, M.D. holds the W.A. "Tex" and Deborah Moncrief Chair of
Urology at the University of Texas M.D. Anderson Cancer Center. He previously
had academic and clinical appointments at the University of Michigan Medical
Center, Ann Arbor, and affiliated institutions. He is Chairman of the NIH
Bladder Center Marker Network, the Organ Site Chairman for Local Bladder Cancer
of SWOG, and a member of the American Joint Committee on Cancer's Task Force on
Genitourinary Cancers, and has devoted more than 20 years to research and
treatment of genitourinary cancers. Dr. Grossman has a B.A. from LaSalle College
and an M.D. from Temple University.
Brian Leyland-Jones, M.D. is Professor of Oncology & Medicine and occupies
the Minda de Gunzburg Chair of Oncology at McGill University. Prior to moving to
McGill University in 1990, he was, among other things, Chief of the
Developmental Chemotherapy Section in the Investigational Drug Branch at the
National Cancer Institute and held staff appointments at Cornell University
Medical College, Memorial Sloan-Kettering Cancer Center and the New York
Hospital in Pharmacology, Clinical Pharmacology, Internal Medicine and Oncology.
Dr. Leyland-Jones holds degrees from the University of London and St. Mary's
Hospital Medical School of the University of London.
Mark J. Ratain, M.D. is a hematologist/oncologist and Professor of Medicine
at the University of Chicago. He is also Chairman of the University's Committee
on Clinical Pharmacology, as well as Co-Director of its Clinical and
Experimental Therapeutics Program in the Cancer Research Center. He is the
immediate past Secretary-Treasurer of the American Society of Clinical Oncology
and also holds several leadership positions in the American Society for Clinical
Pharmacology and Therapeutics. Dr. Ratain has an A.B. from Harvard and an M.D.
from Yale University.
59
<PAGE> 62
\SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
twelve months ended June 30, 1998 for: (i) the Chief Executive Officer of the
Company and (ii) the three other most highly paid executive officers of the
Company (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUSES OPTIONS
--------------------------- --------- ------- ------------
<S> <C> <C> <C>
Michael C. Walker
Chief Executive Officer and President..................... $258,332 $0 50,000
Joseph V. Gulfo(2)
Former Executive Vice President and Chief Operating
Officer................................................... $210,192 $0 150,000
Allen L. Thunberg
Vice President -- Pre-Clinical Development................ $135,528 $0 11,500
Denise Webber
Vice President -- Clinical and Regulatory Operations...... $113,075 $0 31,500
</TABLE>
- ---------------
(1) The cost of certain perquisites and other personal benefits are not included
because they did not exceed the lesser of either $50,000 or 10% of the total
of the annual salary and bonus reported for the Named Executive Officer.
(2) In September 1998 Dr. Gulfo resigned as a Director and executive officer of
the Company.
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<PAGE> 63
OPTION GRANTS IN THE TWELVE MONTHS ENDED JUNE 30, 1998
The following table sets forth information regarding stock options granted
pursuant to Anthra's 1990 Stock Plan, as amended (the "1990 Plan"), during the
twelve months ended June 30, 1998 to each of the Named Executive Officers. The
Company has never granted any stock appreciation rights.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED TO ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES IN EXERCISE OR MARKET PRICE PRICE APPRECIATION FOR
UNDERLYING FISCAL YEAR BASE PER SHARE ON OPTION TERM(3)
OPTIONS ENDED JUNE 30, PRICE PER THE DATE OF EXPIRATION -----------------------
NAME GRANTED(1) 1998(%)(2) SHARE GRANT DATE 5% 10%
---- ---------- -------------- ----------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Walker.... 50,000 7.05% $1.00 $3.00 10/16/07 $194,334 $339,061
Joseph V. Gulfo(4)... 75,000 $1.00 $3.00 10/16/07 $291,501 $508,592
75,000 (5) $8.00 5/15/08 -- --
------- -------- --------
150,000 21.14% $291,501 $508,592
Allen L. Thunberg.... 7,500 $3.00 $5.00 12/11/07 $ 38,584 $ 74,765
4,000 $8.00 $8.00 4/23/08 $ 20,125 $ 51,000
------- -------- --------
11,500 1.62% $ 58,709 $125,765
Denise Webber........ 10,000 $3.00 $5.00 12/11/07 $ 51,445 $ 99,687
21,500 $8.00 $8.00 4/23/08 $108,170 $274,124
------- -------- --------
31,500 4.44% $159,615 $373,811
</TABLE>
- ---------------
(1) Such options were granted pursuant to and in accordance with the 1990 Plan.
See "1990 Stock Plan."
(2) Based on an aggregate of 709,500 options granted to employees in the twelve
months ended June 30, 1998, including options granted to Named Executive
Officers.
(3) Based on the grant date fair market value per share as stated, gains are
reported net of the option exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions, as well
as the option holder's continued employment with the Company throughout the
vesting period. The amounts reflected in this table will not necessarily be
achieved.
(4) In September 1998 Dr. Gulfo resigned as a Director and executive officer of
the Company.
(5) Exercise price will be equal to the fair market value on the date of
occurrence of certain future events.
JUNE 30, 1998 -- FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of June
30, 1998. No Named Executive Officer exercised any options in the twelve months
ended June 30, 1998.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael C. Walker............................ 163,000 100,000 $790,550 $415,000
Joseph V. Gulfo(2)........................... 38,000 162,000 $175,280 $678,420
Allen L. Thunberg............................ 14,000 28,500 $ 60,200 $105,300
Denise Webber................................ 5,000 16,000 $ 23,120 $ 47,240
</TABLE>
- ---------------
(1) Assumes a market price for the Common Stock at June 30, 1998 of $5.00 per
share.
(2) In September 1998 Dr. Gulfo resigned as a Director and executive officer of
the Company.
61
<PAGE> 64
EMPLOYMENT AGREEMENTS
In December 1990, the Company entered into an employment agreement with
Michael C. Walker pursuant to which Mr. Walker serves as the Company's President
and Chief Executive Officer. Such employment agreement, as currently amended,
provides Mr. Walker with a base salary of $20,833 per month, provided for
certain grants of options to purchase shares of the Company's Common Stock to
Mr. Walker in fiscal year 1990, and required that Mr. Walker execute and deliver
a separate confidentiality and noncompetition agreement. Mr. Walker's employment
agreement may be terminated by either party with 60 days prior written notice.
The Company does not have written employment agreements with any of its
employees other than Mr. Walker.
The Company has an agreement with each of Mr. Walker and Allen L. Thunberg,
its Vice President -- Pre-Clinical Development, pursuant to which, in the event
of a sale of 80% or more of the outstanding capital stock of the Company in a
single or integrated transaction or the sale of the Company through a merger or
consolidation where the Company is not the surviving corporation, in each case
where the Company's stockholders prior to the transaction own less than 50% of
the outstanding capital stock of the Company after the transaction, Messrs.
Walker and Thunberg will each receive a payment equal to 12 months of his base
salary as of the date of the transaction so long as such individual agrees to
continue working for the new successor entity in a specified capacity for three
months following the consummation of the transaction, provided, however, that
such transaction must occur within two years of the date of such agreement and
such individual must be employed by the Company.
The Company has a consulting agreement with Dr. Mervyn Israel, the
Company's Chairman of the Board and Secretary, dated as of December 5, 1990,
pursuant to which Dr. Israel provides scientific consulting services to the
Company in consideration of $3,750 per month. Dr. Israel's consulting agreement
does not contain a specified term and may be terminated by either party with 60
days prior written notice.
Anthra does routinely enter into written agreements with consultants
providing clinical, medical writing, regulatory consulting or business
development services, none of which is material to the Company's business. The
Company has executed non-disclosure agreements with each of its current
employees.
1990 STOCK PLAN
By action of the Board of Directors of the Company on December 3, 1990, the
Company adopted the 1990 Plan, which was approved by vote of the stockholders at
the annual meeting of stockholders held on December 3, 1990. The 1990 Plan
authorizes the Company to grant to eligible employees, Directors and consultants
of the Company, as determined by the Board of Directors, options to purchase
shares of the Company's Common Stock. The 1990 Plan also permits the Company to
grant to such individuals certain awards of Common Stock, and certain rights to
make direct purchases of Common Stock.
As of June 30, 1998, the 1990 Plan authorized the Company to issue options
to purchase up to 1,700,000 shares of the Company's Common Stock, and the
Company had outstanding options for a total of 1,535,487 shares of Common Stock,
of which none have been exercised and 30,200 were cancelled since June 30, 1998.
The 1990 Plan provides for options that qualify as incentive stock options
("ISOs") under Section 422 of the Internal Revenue Code of 1986, as amended, as
well as non-statutory (or non-qualified) stock options. The exercise price for
any non-qualified options granted pursuant to the 1990 Plan may not be less than
the lesser of the book value per share of the Common Stock as of the end of the
fiscal year immediately preceding the date of the grant, or 50% of the fair
market value of the Common Stock on the date of the grant. The exercise price
for any ISOs granted pursuant to the 1990 Plan may not be less than 100% of the
fair market value of the Common Stock on the date of grant, and, in the case of
an ISO stock option to be granted to an employee owning more than 10% of all
voting power of the Company or any affiliated company, the exercise price may
not be less than 110% of the fair market value on the date of grant. The 1990
Plan provides that, in the event of a change in control of the Company pursuant
to which either all or substantially all of the Company's assets are sold, 80%
or more of the Company's outstanding capital stock is sold by tender offer,
exchange offer or otherwise, the Company is sold through a consolidation or
merger where the Company is not the surviving
62
<PAGE> 65
corporation, or the acquisition is a result of a reverse triangular merger and
the previous stockholders own an aggregate of less than 50% of the surviving
corporation after such transaction, then optionees are entitled after any such
event to exercise all outstanding but unvested options, as well as all
outstanding vested options issued to them. In the event of a recapitalization or
reorganization of the Company (other than as described above), pursuant to which
securities of the Company or of another corporation are issued with respect to
the Company's outstanding Common Stock, an optionee, upon exercising an option,
shall be entitled to receive for the purchase price paid, upon such exercise,
the securities he would have received if he had exercised his option prior to
such recapitalization or reorganization.
Subject to certain restrictions and limitations, options granted under the
1990 Plan typically have a term of ten years from the date of grant. ISOs
exercisable upon the date of death or disability of any ISO optionee remain
exercisable until the earlier of the specified expiration date or the date one
year from the date of the optionee's death or disability. If an ISO optionee
ceases to be employed by the Company for any reason other than for death or
disability, no further installments of ISOs shall vest, and ISOs which are
exercisable shall terminate, subject to certain restrictions and limitations,
one year from the date of termination, but in no event later than on their
specified expiration dates. Options granted under the 1990 Plan may not be
transferred or assigned, other than by will or by the laws of descent and
distribution.
The 1990 Plan shall expire on December 2, 2000, except as to options
outstanding as of such date. The Board of Directors of the Company may terminate
or amend the 1990 Plan at any time; provided, however, that certain amendments
shall require stockholder approval, and in no event may the Board of Directors
impair the rights of a grantee under the 1990 Plan with respect to any of rights
previously granted under the 1990 Plan.
The Company has agreed with the Underwriter that it will not file any
registration statement to register any of the securities granted or issued under
the Company's 1990 Plan during the 13 months following the closing date of the
Offering without the Underwriter's prior written consent.
401(k) RETIREMENT SAVINGS PLAN
During June 1998, the Company established a duly adopted 401(k) retirement
savings plan, pursuant to which eligible employees may direct a percentage of
their compensation, as restricted by statutory limitations, to be withheld by
the Company and contributed to their account. All 401(k) plan contributions are
placed in a trust fund which is invested by the 401(k) plan's trustee, and the
401(k) plan permits participants to direct the investment of their account
balances among mutual or investment funds which are available under the plan. It
is anticipated that the Company may at future dates, at management's discretion,
make matching contributions under the 401(k) plan. Amounts contributed to
participant accounts under the 401(k) plan and any earnings or interest accrued
on the participant accounts are generally not subject to Federal income tax
until distributed to the participant and may not be withdrawn until death,
retirement, or termination of employment.
COMMITTEES OF THE BOARD OF DIRECTORS
In December 1990, the Board of Directors designated a Compensation
Committee, to consist of three members. Paul G. Gooding, a nonemployee Director,
has indicated his willingness to serve on the Compensation Committee if
appointed. The Board of Directors intends to reduce the size of the Compensation
Committee to two members and appoint Dr. Gooding as a member along with another
nonemployee Director, at its next regularly scheduled meeting. The Compensation
Committee reviews executive salaries, administers any bonuses and incentive
compensation, and makes recommendations to the Board of Directors with respect
to stock options of the Company issuable to management employees and Directors
of the Company. In addition, the Compensation Committee consults with management
of the Company regarding compensation policies and practices of the Company. In
April 1998, the Board of Directors designated an Audit Committee to consist of
three members. The Board of Directors has appointed William Engbers, a
nonemployee Director, as a member of the Audit Committee, and intends to appoint
two additional nonemployee Directors to the Audit Committee at its next
regularly scheduled meeting. The Audit
63
<PAGE> 66
Committee reviews the professional services provided by the Company's
independent auditors, the annual financial statements of the Company and the
Company's internal financial controls. There have been no meetings of the Audit
Committee.
DIRECTOR COMPENSATION
Fees. None of the Company's Directors receive cash compensation for
attendance at meetings of the Board of Directors or at meetings of committees of
the Board of Directors of which they are members. All Directors receive
reimbursement for reasonable travel expenses incurred in connection with
attendance at each Board of Directors and committee meeting.
Stock Options. To attract and retain independent Directors for the Company
and to compensate Directors who are included as management of the Company, the
Company has issued, and intends to continue to issue, to its Directors, options
to purchase the Company's Common Stock pursuant to the 1990 Plan, in amounts
determined at the discretion of the Board of Directors and exercisable at a
price equal to the fair market value of the Common Stock on the date of grant.
These options typically vest over a three year period. Independent Directors are
typically granted stock options upon their initial appointment, and independent
Directors and stockholder representative Directors may be granted stock options
during their term of service as an incentive for continued service. Employee
Directors are not granted stock options for their services as Directors.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 24, 1998, and as
adjusted to reflect the sale by the Company of the securities offered hereby
(assuming no exercise of the Underwriter's over-allotment option and no exercise
of the Warrants, the Underwriter's Warrant or the Warrants underlying the Units
underlying the Underwriter's Warrant), by: (i) each Director of the Company;
(ii) each Named Executive Officer of the Company; (iii) all Directors and
executive officers of the Company as a group; and (iv) each beneficial owner of
more than 5% of the outstanding Common Stock. To the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent set forth in the footnotes to
the table below or that authority is shared by their respective spouses under
applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
-------------------------
SHARES OF COMMON STOCK AS OF
NAME, TITLE AND ADDRESS OF BENEFICIALLY OWNED AS OF SEPTEMBER 24, AFTER
BENEFICIAL OWNER(1) SEPTEMBER 24, 1998(2) 1998 OFFERING
-------------------------- ------------------------ ------------- --------
<S> <C> <C> <C>
Mervyn Israel(3).................................... 493,834 9.83% 7.03%
Chairman of the Board and Secretary
c/o University of Tennessee
Department of Pharmacology
College of Medicine
874 Union Avenue,
Memphis, TN 38163
Michael C. Walker(4)................................ 560,500 11.15% 7.98%
President, Chief Executive Officer and Director
Paul G. Gooding(5).................................. 30,834 0.63% 0.45%
Director
c/o Habitat
Hope Town, Abaco, Bahamas
William Engbers(6).................................. 3,334 0.07% 0.05%
Director
c/o Allstate Insurance Company
3075 Sanders Road, Suite G5D
Northbrook, IL 60062-7127
Allen L. Thunberg(7)................................ 14,000 0.29% 0.20%
Vice President -- Pre-Clinical Development
Allstate Insurance Company(8)....................... 1,140,392 23.49% 16.64%
3075 Sanders Road
Suite G5D
Northbrook, IL 60062-7127
Aperture Associates, L.P............................ 420,588 8.66% 6.14%
c/o Horsley Bridge Partners, Inc.
505 Montgomery Street, 21st Floor
San Francisco, CA 94111
Sevin Rosen Fund III, L.P........................... 919,803 18.94% 13.42%
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75240
Advanced Technology Ventures III, L.P............... 744,805 15.34% 10.86%
281 Winter Street, Suite 350
Waltham, MA 02154
Schering AG, Germany(9)............................. 471,276 9.71% 6.87%
13342 Berlin
Germany
Nycomed............................................. 300,000 6.18% 4.38%
Nycomed Pharma AS
P.O. Box 4220
Torshov, 0401 Oslo
Norway
</TABLE>
65
<PAGE> 68
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
-------------------------
SHARES OF COMMON STOCK AS OF
NAME, TITLE AND ADDRESS OF BENEFICIALLY OWNED AS OF SEPTEMBER 24, AFTER
BENEFICIAL OWNER(1) SEPTEMBER 24, 1998(2) 1998 OFFERING
-------------------------- ------------------------ ------------- --------
<S> <C> <C> <C>
Denise Webber(10)................................... 6,000 0.12% 0.09%
Vice President -- Clinical and Regulatory
Operations
All Directors and executive officers................ 1,112,502 21.18% 15.34%
as a group (9 persons)(11)
</TABLE>
- ---------------
(1) Unless otherwise noted, the address of each of the persons listed is 103
Carnegie Center, Suite 102, Princeton, New Jersey 08540.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership
percentage of the person holding such options, warrants or rights, but are
not deemed outstanding for computing the ownership percentage of any other
person. The amounts and percentages are based upon 4,855,183 shares of
Common Stock outstanding as of September 1, 1998, and 6,855,183 shares of
Common Stock outstanding as of the close of the Offering, respectively. The
Company is currently attempting to obtain agreements from all of the
holders of the Preferred Stock to convert all of their shares of Preferred
Stock into the same number of shares of Common Stock upon the closing of
the Offering. The calculation of the number of shares of Common Stock
assumes that the Company is successful in its attempt to obtain agreements
from all of the holders of the Preferred Stock to convert their shares and
reflecting the resultant conversion of the outstanding Preferred Stock upon
consummation of the Offering and the shares of Common Stock receivable upon
such conversion are included in such number.
(3) Includes 166,334 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(4) Includes 173,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering, and excludes (i) 50,000 shares
of Common Stock subject to options, which vest on the achievement of a
certain milestone, issued on June 11, 1996, and (ii) 40,000 shares of
Common Stock subject to options, which vest over a five year period, issued
on October 16, 1997.
(5) Includes 30,834 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(6) Includes 3,334 shares of Common Stock subject to options exercisable within
60 days of the date of the Offering. Excludes 1,140,392 shares of Common
Stock owned by Allstate Insurance Company and Allstate Life Insurance
Company, companies for which Mr. Engbers serves as a venture capital
manager. Mr. Engbers disclaims beneficial ownership of any shares owned by
Allstate Insurance Company and Allstate Life Insurance Company.
(7) Includes 14,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering. Excludes (i) 12,000 shares of
Common Stock subject to options, which vest over the next three years, a
total of 20,000 were issued on April 11, 1996 and, (ii) 5,000 shares of
Common Stock subject to options, which vest over the next two years, a
total of 10,000 were issued on June 10, 1996 and, (iii) 4,000 shares of
Common Stock subject to options, which vest over the next four years, a
total of 5,000 were issued February 12, 1997 and, (iv) 7,500 shares of
Common Stock subject to options, which vest over the next five years,
issued December 11, 1997 and, 4,000 shares of Common Stock subject to
options, which vest on the achievement of certain milestones issued April
23, 1997.
(8) Includes 456,157 shares of Common Stock owned by Allstate Life Insurance
Company, a wholly-owned subsidiary of Allstate Insurance Company.
(9) Includes 271,276 shares of Common Stock owned by Schering Berlin Venture
Corporation, an affiliate of Schering AG, Germany.
(10) Includes 6,000 shares of Common Stock subject to options exercisable within
60 days of the date of the Offering, Excludes (i) 1,000 shares of Common
Stock subject to options, which vest over the next year, a total of 5,000
were issued on February 28, 1995 (ii) 1,000 shares of Common Stock subject
to options, which vest over the next three years, a total of 2,500 shares
were issued on March 27, 1995, (iii) 2,000 shares of Common Stock subject
to options, which vest over the next four years, a total of 2,500 shares
were issued on February 28, 1997 and, (iv) 10,000 shares of Common Stock
subject to options, which vest over the next five years, issued on December
11, 1997 and, (v) 6,500 shares of Common Stock subject to options, which
vest on the achievement of certain milestones issued on April 23, 1998 and,
(vi) 15,000 shares of Common Stock subject to options, which vest over the
next five years issued on April 23, 1998.
(11) Includes 397,502 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
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<PAGE> 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had an agreement with M.C. Walker & Associates, Inc., a New
Jersey corporation ("MCW") that is owned by Michael C. Walker, the Company's
President, Chief Executive Officer and Director, to provide certain
administrative services and maintain an office for the benefit of the Company
for a monthly fee of $4,166. The Company paid to MCW pursuant to this
arrangement a total of $81,667 (including amounts related to prior years) during
the 12 months ended June 30, 1997, and a total of $65,062 for the twelve months
ended June 30, 1998, in each case in consideration for amounts owed for such
services prior to December 31, 1996. At June 30, 1998, no amounts remained
payable by the Company to MCW. There was no written agreement between MCW and
the Company in effect during 1997 or 1998 and the arrangement between MCW and
the Company no longer exists. It is anticipated that there will be no such
future arrangement between the Company and MCW.
The Company has a consulting agreement with Dr. Mervyn Israel, the
Company's Chairman of the Board and Secretary, pursuant to which the Company
pays Dr. Israel $3,750 per month for scientific consulting services. See
"Management -- Employment Agreements." During the 12 months ended June 30, 1998,
the Company paid a total of $45,000 to Dr. Israel pursuant to this agreement,
which is expected to continue to be effective in the immediate future.
The Company provides an unrestricted gift of $10,100 for research support
on a monthly basis to the University of Tennessee, the entity at which Dr.
Israel, the Company's Chairman of the Board, Secretary and Director, is
employed. During the 12 months ended June 30, 1998, the Company paid a total of
$121,200 to the University of Tennessee, and thereafter has continued, and
anticipates continuing in the future, making such unrestricted monthly gifts for
research support.
In September 1997, the Company hired Mr. Richard Onyett as its Senior Vice
President -- Corporate Development. In addition to his corporate development
responsibilities, Mr. Onyett manages the Company's U.K. operations, including
clinical development. Mr. Onyett's annual salary is L95,000 ($159,600 using a
conversion factor of 1.68 dollars for 1 British pound) and the Company has
granted Mr. Onyett certain options, none of which have vested. The Company does
not have an employment agreement with Mr. Onyett.
The Company paid in the twelve months ended June 30, 1997, the sum of
$25,000 to Starlight, a consulting firm, in respect of organizational and
administrative services regarding exhibits of the Company's products. Starlight
is owned by Ms. Canice Lindsay, the wife of Michael C. Walker, the President,
Chief Executive Officer and Director of the Company. The arrangement between
Starlight and the Company no longer exists, and it is anticipated that there
will be no such future arrangement between the Company and Starlight.
Any transactions between the Company and its affiliated entities, executive
officers, Directors, or significant stockholders require the approval of a
majority of the independent Directors of the Company and must be on terms that
must be no less favorable to the Company than the Company could obtain from non-
affiliated parties.
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<PAGE> 70
DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law, and to
the provisions of the Company's Amended Certificate of Incorporation and Bylaws,
the Unit and Warrant Agreement between Anthra and American Stock Transfer &
Trust Company (the "Warrant Agreement"), the Underwriter's Option Agreement for
Units (with respect to the Underwriter's Warrant) between the Company and the
Underwriter (the "Underwriter's Warrant Agreement"), the Underwriting Agreement
between the Company and the Underwriter, and the Fifth Amended and Restated
Registration Rights Agreement between the Company and certain of the Company's
shareholders, copies or forms of which have been filed as exhibits to the
Registration Statement, as amended, of which this Prospectus is a part.
The authorized capital stock of the Company consists of (i) 15,000,000
shares of Common Stock; (ii) 3,789,683 shares of Preferred Stock; and (iii)
1,000,000 shares of preferred stock, $.01 par value, all of which are without
designation. Immediately prior to the completion of the Offering, 4,855,183
shares of Common Stock will be issued and outstanding (assuming no exercise of
outstanding options and including 3,789,683 shares issuable upon the conversion
of 3,789,683 outstanding shares of Preferred Stock), and no shares of Preferred
Stock will be issued and outstanding. Immediately following the completion of
the Offering, the Company plans to amend and restate the Amended Certificate of
Incorporation to (i) cancel and retire all currently authorized shares of
Preferred Stock, and (ii) integrate the Company's Certificate of Incorporation
and the amendments thereto into one document. The Company plans to solicit
shareholder approval for such action prior to the completion of the Offering.
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Warrant. The shares of Common Stock and Warrants included in the Units will not
be separately transferable, and the Warrants will not be exercisable, until the
Separation Date. It is the Company's intention that the Units and, effective as
of the Separation Date, the Common Stock and the Warrants, will be listed for
quotation on the American Stock Exchange. After the Separation Date, the shares
of Common Stock and the Warrants may only be transferred separately, and the
Units will no longer be quoted on the American Stock Exchange.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
Common Stock do not have cumulative voting rights and, therefore, holders of a
majority of the shares of Common Stock voting for the election of Directors can
elect all of the Directors. In such event, the holders of the remaining shares
of Common Stock will not be able to elect any Directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends since inception
and does not anticipate paying cash dividends in the foreseeable future. In the
event of liquidation, dissolution, or winding up of the Company, the holders of
Common Stock are entitled to share ratably in any corporate assets remaining
after payment of all debts, subject to any preferential rights of any
outstanding preferred stock. See "Dividend Policy."
Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by the Company. All
of the outstanding shares of Common Stock are validly issued, fully paid, and
nonassessable. When issued, all of the shares of Common Stock included in the
Units and underlying the Warrants included in this Offering will be validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Amended Certificate of Incorporation authorizes 1,000,000 shares of an
undesignated preferred stock which the Board of Directors of the Company has the
authority, without further action by the Company's
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<PAGE> 71
stockholders, to issue from time to time in one or more series and to fix the
number of shares, designations, voting powers, preferences, optional and other
special rights, and the restrictions or qualifications thereof. The rights,
preferences, privileges, and restrictions or qualifications, of different series
of preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions, and other matters. The issuance of preferred stock could: (i)
decrease the amount of earnings and assets available for distribution to holders
of Common Stock; (ii) adversely affect the rights and powers, including voting
rights, of holders of Common Stock and (iii) have the effect of delaying,
deferring, or preventing a change in control of the Company. The Company has no
present plans to issue any additional shares of preferred stock. The information
set forth in this Prospectus assumes that upon the completion of the Offering,
1,000,000 shares of the Company's Series A Convertible Preferred Stock, 680,000
shares of Series B Convertible Preferred Stock, 1,470,588 shares of Series C
Convertible Preferred Stock and 639,095 shares of Series D Convertible Preferred
Stock will be converted into 3,789,683 shares of Common Stock, and all such
outstanding shares of Preferred Stock will be cancelled and retired. The Series
A, B and C Convertible Preferred Stock automatically convert to Common Stock
upon the consummation of a firm commitment underwritten offering of Common Stock
in which the aggregate price paid for such shares by the public is at least
$10,000,000 and the price per share is at least $7.50; for the Series D
Convertible Preferred Stock, a per share price of at least $11.06 in a public
offering of at least $10,000,000 is required for automatic conversion to Common
Stock. It is a condition to the Offering that the Company obtain the agreement
of all holders of Preferred Stock to convert their shares of Preferred Stock to
Common Stock upon the consummation of the Offering.
WARRANTS
Underwriter's Warrant
In connection with the Offering, the Company has authorized the issuance of
the Underwriter's Warrant and has reserved 400,000 shares of Common Stock for
issuance upon exercise of such warrant (including the Warrants issuable upon
exercise of the Underwriter's Warrant). The Underwriter's Warrant will entitle
the holder to acquire up to 200,000 Units at an exercise price of $7.00 per Unit
(140% of the initial public offering price per Unit). The Underwriter's Warrant
will be exercisable at any time from the first anniversary of the date of this
Prospectus until the fifth anniversary of the date of this Prospectus.
The Warrants contained in the Units underlying the Underwriter's Warrant
shall have substantially the same terms as the Warrants sold to the public in
the Offering. The Company has agreed that it will, on one occasion during the
four-year period commencing one year from the date of this Prospectus, file a
registration statement with the Commission upon the request of the holders of
the Underwriter's Warrant (and the securities thereunder) representing a
majority of the shares of Common Stock issuable upon the exercise of such
Warrant at the Company's expense which registration statement shall include the
shares of the Company's Common Stock and Warrants underlying the Units
underlying the Underwriter's Warrant, and the shares of Common Stock underlying
the Warrants underlying the Units underlying the Underwriter's Warrant. The
registration statement is to remain effective during the entire exercise term of
the Underwriter's Warrant. The holder of the Underwriter's Warrant may demand
registration without exercising the Underwriter's Warrant. In addition, the
Company has also agreed, to provide to the Underwriter "piggyback" registration
rights covering the shares of Common Stock, Warrants and the shares of Common
Stock underlying such Warrants, subject to customary cut-back provisions. The
Underwriter's Warrant will be nontransferable for a period of one year, subject
to certain exceptions, and may be exercised as to all or a lesser number of
Units. The Underwriter's Warrant provides for cashless exercise and adjustment
in the number and price of Units to prevent dilution. The Warrants contained in
the Units underlying the Underwriter's Warrant shall be non-redeemable.
Class A Redeemable Common Stock Purchase Warrants
Each Warrant will entitle the holder to purchase one share of Common Stock
at a price of $6.00 per share. The Warrants will, subject to certain conditions,
be exercisable at any time after the Separation Date
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<PAGE> 72
and until the fifth anniversary of the date of this Prospectus, unless earlier
redeemed. The Warrants are redeemable by the Company, in whole or in part, on or
after the date 15 months from the date of this Prospectus at $.10 per Warrant,
upon at least thirty days' prior written notice to the registered holders
thereof, provided that (i) the last sales price of the Common Stock as reported
on the American Stock Exchange has been at least $9.00 for twenty consecutive
trading days ending within ten days of the date of the notice of redemption and
(ii) there is a current registration statement covering the resale of the
underlying shares of Common Stock. If the Company gives notice of its intention
to redeem, a holder must exercise his or her Warrant before the date specified
in the redemption notice or accept the redemption price for the number of
Warrants to be redeemed.
The Warrants will be issued in registered form under the Warrant Agreement.
The shares of Common Stock underlying the Warrants, when issued upon exercise of
a Warrant and following full payment of the exercise price by the holder, will
be fully paid and nonassessable, and the Company will pay any transfer tax
incurred as a result of the issuance of Common Stock to the holder upon its
exercise.
The Warrants and the Underwriter's Warrant contain provisions that protect
the holders against dilution by adjustment of the exercise price. Such
adjustments will occur in the event, among others, that the Company makes
certain distributions to holders of its Common Stock. The Company is not
required to issue fractional shares upon the exercise of a Warrant or the Units
underlying the Underwriter's Warrant. The holder of a Warrant or the
Underwriter's Warrant will not possess any rights as a shareholder of the
Company until such holder exercises the Warrant or the Warrants underlying the
Units underlying the Underwriter's Warrant.
A Warrant may be exercised upon surrender of the Warrant certificate (the
"Warrant Certificate") on or before the Exercise Deadline (as defined in the
Warrant Agreement) of the Warrant at the offices of the Warrant Agent, with the
form of "Election To Purchase" on the reverse side of the Warrant Certificate
completed and executed as indicated, accompanied by payment of the exercise
price (by certified or bank check payable to the order of the Company) for the
number of shares with respect to which the Warrant is being exercised.
For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Commission and qualification in effect under
applicable state securities laws (or applicable exemptions from state
qualifications requirements) with respect to the issuance of shares or other
securities underlying the Warrants. The Company is registering such securities
with the Commission pursuant to this Registration Statement. The Company has
agreed to use all commercially reasonable efforts to either (i) keep this
Registration Statement effective through the Effective Deadline (as defined in
the Warrant Agreement) or until such time as no Warrants are outstanding or (ii)
cause a registration statement with respect to the shares of Common Stock
underlying the Warrants to be effective from the Separation Date through the
Effective Deadline or until such time as no Warrants remain outstanding. In
addition, the Company has agreed to register or qualify the shares of Common
Stock issuable upon the exercise of the Warrants under the laws of various
states that may be required to cause the sale of such securities to be lawful.
The foregoing discussion of certain terms and provisions of the Warrants
and the Underwriter's Warrant is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and the Underwriter's Warrant, the
form of each of which has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
For the life of the Warrants and the Underwriter's Warrant, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Warrants, the Underwriter's Warrant and
the Warrants underlying the Units underlying the Underwriter's Warrant. The
holders of the Warrants and the Underwriter's Warrant may be expected to
exercise such securities at a time when the Company would, in all likelihood, be
able to obtain any needed capital by an offering of Common Stock on terms more
favorable than those provided for by such securities. Further, the terms on
which the Company could obtain additional capital during the life of such
securities may be adversely affected.
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REGISTRATION RIGHTS
Beginning six months from the date of this Prospectus, certain stockholders
are entitled to demand registration rights with respect to 3,839,683 shares of
Common Stock (the "Registrable Securities"). Pursuant to these rights such
stockholders may require that the Company file (i) up to two registration
statements under the Securities Act upon request of holders of at least 40% of
the Registrable Securities, subject to certain minimum size conditions and (ii)
an unlimited number of registration statements on Form S-3 at such time as the
Company is eligible to use Form S-3. In addition, if the Company proposes to
register any of its securities under the Securities Act, holders of the
Registrable Securities plus holders of an additional 715,000 shares of the
Company's Common Stock are entitled, subject to certain restrictions and
limitations, to include such securities in such registration. The Company is
required to bear substantially all registration and selling expenses (except for
underwriting discounts and selling commissions) in connection with the above
described registrations. The foregoing registration rights are transferable in
certain circumstances and may be amended or waived only with the written consent
of the Company and holders of at least two-thirds of the Registrable Securities
then outstanding. It is a condition of the Offering that the holders of the
foregoing registration rights waive their rights to include such securities in
the Offering and for a period of 13 months from the closing date of the
Offering.
The Company has also granted the holder of the Underwriter's Warrant
certain registration rights with respect to such warrant. See "Description of
Securities -- Warrants -- Underwriter's Warrant."
ANTI-TAKEOVER LAW
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law ("DGCL"), which restricts certain transactions and
business combinations between a corporation and an "Interested Stockholder" (as
defined in Section 203) owning 15% or more of the corporation's outstanding
voting stock, for a period of three years from the date the stockholder becomes
an Interested Stockholder. Subject to certain exceptions, unless the transaction
is approved by the board of directors and the holders of at least two-thirds of
the outstanding voting stock of the corporation (excluding shares held by the
Interested Stockholder), Section 203 prohibits significant business transactions
such as a merger with, disposition of assets to, or receipt of disproportionate
financial benefits by the Interested Stockholder, or any other transaction that
would increase the Interested Stockholder's proportionate ownership of any class
or series of the corporation's stock. 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).
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, a Director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of such Director's fiduciary duty, except for liability: (i) for any
breach of the Director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases; and (iv) for any
transaction from which the Director derives an improper benefit. The effect of
the provisions of the Amended Certificate of Incorporation is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a Director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or recession in the event of a breach
of a Director's duty of care. The Amended Certificate of Incorporation further
provides that the Company shall indemnify any person who is or was a Director,
officer, employee, or agent of the Company, or who is or was serving at the
request of the Company as a Director, officer, employee, or agent of another
corporation or entity, against expenses, liabilities, and losses incurred by any
such person by reason of the fact that such
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<PAGE> 74
person is or was acting in such capacity. The Company has agreed to use its best
efforts to secure insurance prior to the date of this Prospectus on behalf of
the Company's officers and Directors for certain liabilities arising out of such
person's actions in such capacity. There can be no assurances given that the
Company will be able to obtain such insurance on commercially reasonable terms,
if at all.
TRANSFER AGENT AND REGISTRAR
The unit agent, warrant agent and transfer agent and registrar for the
Units, the Common Stock and the Warrants of the Company is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
securities. Sales of substantial amounts of shares of the Company's securities
in the public market following the Offering could adversely affect the market
price of the Units, the Common Stock and the Warrants, making it more difficult
for the Company to sell equity securities in the future at a time and price
which it deems appropriate.
Upon the completion of the Offering, the Company will have 6,855,183 shares
of Common Stock outstanding (7,155,183 if the Underwriter's over-allotment
option is exercised in full). Of these shares, the 2,000,000 shares included in
the Units sold in the Offering will be freely tradable without restriction or
further registration under the Securities Act. However, the shares of Common
Stock included in the Units will not be traded on the American Stock Exchange
until the Separation Date. The remaining 4,855,183 shares of Common Stock
outstanding as of the date of this Prospectus are "restricted securities" as
that term is defined by Rule 144 of the Securities Act, and were issued and sold
by the Company in reliance on exemptions from registration under the Securities
Act. These restricted shares may not be sold in the public market unless they
are registered under the Securities Act or are sold pursuant to an exemption
from registration, such as Rule 144, 144(k) or 701. Beginning 90 days after the
date of this Prospectus, approximately 4,855,183 restricted securities will
become eligible for sale in the public market pursuant to Rule 144 and Rule 701
under the Securities Act. Additional shares of Common Stock will become eligible
for resale in the public market at subsequent dates, including after the
Separation Date, including the shares of Common Stock issuable upon the exercise
of the Warrants, the Underwriter's Warrant and the Warrants issuable thereunder.
In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 68,552 shares after the completion of the Offering)
or the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale, subject to certain requirements concerning
availability of public information, and the manner and notice of sale.
In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements.
The Company has represented to the Underwriter that it will obtain from
substantially all of the Company's stockholders certain lock-up agreements,
pursuant to which such stockholders will agree that for a period commencing on
the date of this Prospectus and ending on the last day of the 13th month after
the closing date of the Offering (the "Lock-Up Period"), they will not, directly
or indirectly, without the prior written consent of the Underwriter, sell, offer
for sale, grant any option for the sale of or otherwise dispose (collectively,
"Dispose") of any shares of Common Stock or any securities exercisable for or
convertible into Common Stock or any rights to acquire Common Stock. The Company
has agreed with the Underwriter that it will not file any registration statement
to register any of the securities granted or issued under the Company's 1990
Plan during the 13 months following the closing date of the Offering without the
Underwriter's prior written consent.
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Certain holders of Common Stock and the holder of the Underwriter's Warrant
have certain demand and "piggyback" registration rights. See "Description of
Securities -- Registration Rights."
As of June 30, 1998, there were 1,535,487 shares of Common Stock issuable
upon exercise of options granted under the 1990 Plan. Under the 1990 Plan,
options may be granted with respect to up to 1,700,000 shares of Common Stock.
The Company intends to file Form S-8 registration statements covering these
shares within 90 days from the date of this Prospectus. The shares registered
under such registration statements will be available for resale in the open
market upon the exercise of vested options, subject to Rule 144 volume
limitations applicable to affiliates.
Prior to this Offering, there has been no public market for the Company's
securities and no prediction can be made as to the effect, if any, that market
sales of securities of the Company or the availability of securities of the
Company for sale will have on the market price of the Company's securities
prevailing from time to time. Nevertheless, sales of substantial numbers of
securities of the Company in the public market could adversely affect the market
price of the Units, the Common Stock and the Warrants and could impair the
Company's ability to raise capital through a sale of its equity securities.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the form
of which is included as an exhibit to the Registration Statement (the
"Underwriting Agreement"), Janssen/Meyers Associates, L.P., as Underwriter, has
agreed to purchase from the Company, and the Company has agreed to sell to the
Underwriter on a firm commitment basis, the 2,000,000 Units offered hereby.
The Underwriting Agreement contains customary representations, warranties
and covenants of the Company, including the Company's entering into the
Underwriter's Warrant Agreement and the Consulting Agreement more fully
described below. In addition, the Underwriting Agreement provides that the
obligations of the Underwriter is subject to certain conditions precedent
specified therein. The nature of the Underwriter's obligation is such that the
Underwriter is committed to purchase and pay for all the Units offered hereby,
if any are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Units directly to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
securities dealers at such price less a concession not in excess of $ per
Unit. The Underwriter may allow, and such selected dealers may reallow, a
concession not in excess of $ per Unit to certain other dealers. After the
Offering, the price to the public, concession allowance and reallowance may be
changed by the Underwriter.
The Company has granted the Underwriter an overallotment option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to an additional 300,000 Units at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discounts
and commissions. The Underwriter may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriter exercises this
option, in whole or in part, the Underwriter will have a firm commitment,
subject to certain conditions, to purchase such additional Units.
The Company has paid the Underwriter $25,000 on account of the
Underwriter's expenses in connection with this Offering to be applied to a
non-accountable expense allowance equal to 3% of the gross proceeds of the
Offering (including the proceeds from the sale of the Units subject to the
Underwriter's over-allotment option, if exercised).
The Company has agreed, pursuant to the terms of the Underwriter's Warrant
Agreement, to issue to the Underwriter, for nominal consideration, Underwriter's
Warrant to purchase up to 200,000 Units, at an exercise price per Unit equal to
$7.00 (140% of the initial public offering price per Unit). The Underwriter's
Warrant is exercisable for a period of four years commencing one year from the
date of this Prospectus and is not transferrable for a period of one year prior
to the exercise date except to the officers of the Underwriter or successors to
the Underwriter. The Warrants underlying the Units underlying the Underwriter's
Warrant shall have substantially the same terms as the Warrants underlying the
Units offered hereby, except that the Warrants underlying the Units underlying
the Underwriter's Warrant shall be non-redeemable. The Underwriter's Warrant
include net exercise provisions permitting the holder to pay the exercise price
by cancellation of a number of Units with a fair market value equal to the
exercise price of the remaining Units. The holder of the Underwriter's Warrant
will have no voting, dividend or other stockholders rights until the
Underwriter's Warrant is exercised. In addition, the Company has granted certain
rights to the holder of the Underwriter's Warrant to register the Common Stock
and Warrants (and the Common Stock thereunder) underlying the Units underlying
the Underwriter's Warrant. See "Description of Securities -- Registration
Rights."
In connection with this Offering the Company also will enter into the
Consulting Agreement pursuant to which the Company will (i) employ the
Underwriter as its investment banker and financial consultant for three years
for an aggregate fee of approximately $100,000 payable at closing; and (ii) for
a period of five years, pay the Underwriter a fee equal to five percent of the
amount up to $5 million and 2 1/2% of the excess, if any, over $5 million of the
consideration in any transaction consummated by the Company with a party
introduced to the Company by the Underwriter. The Consulting Agreement may be
terminated only by the Underwriter upon 30 days' notice, and the Company's
obligations to pay any finder's fee as set forth in the preceding sentence shall
survive such termination.
74
<PAGE> 77
The Underwriting Agreement provides that the Company will indemnify the
Underwriter and its controlling persons against certain liabilities under the
Securities Act, or to contribute to payments the Underwriter and its controlling
persons may be required to make in respect thereof.
The Company has represented to the Underwriter that it will obtain from
substantially all of the Company's stockholders certain lock-up agreements,
pursuant to which such stockholders will agree not to dispose of their shares
for the Lock-Up Period without the prior written consent of the Underwriter. The
Company has agreed with the Underwriter that it will not file any registration
statement to register any of the securities granted or issued under the
Company's 1990 Plan during the 13 months following the closing date of the
Offering without the Underwriter's prior written consent.
It is a condition to the Offering that the Company obtain the agreement of
all holders of Preferred Stock to convert these shares of Preferred Stock to
Common Stock upon the consummation of the Offering.
The Underwriter has advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the securities offered hereunder
at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the securities offered
hereunder on behalf of the Underwriter for the purpose of fixing or maintaining
the price of the securities offered hereunder. A "syndicate covering
transaction" is the bid for or the purchase of securities offered hereunder on
behalf of the Underwriter to reduce a short position incurred by the Underwriter
in connection with the Offering. A "penalty bid" is an arrangement permitting
the Underwriter to reclaim the selling concession otherwise accruing to the
Underwriter or syndicate member in connection with the offering if the
securities offered hereunder originally sold by the Underwriter or syndicate
member is purchased by the Underwriter in a syndicate covering transaction and
has therefore not been effectively placed by the Underwriter or syndicate
member. The Underwriter has advised the Company that such transactions may be
effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Prior to the Offering, there has been no public market for the Company's
securities. The initial public offering price for the Units has been determined
through negotiations between the Company and the Underwriter and was based on,
among other things, the Company's financial condition, the prospects of the
Company and its industry in general, the management of the Company and the
market prices of securities of companies engaged in business similar to those of
the Company.
Certain of the securities offered hereby may be initially offered outside
of the United States by the Underwriter. No action has been or will be taken in
any jurisdiction (except in the United States) that would permit a public
offering of such securities or the possession, circulation or distribution of
this Prospectus or any amendment or supplement hereto or any other material
relating to the Company or such securities in any jurisdiction where action for
that purpose is required. Accordingly, the securities offered hereby may not be
offered or sold, directly or indirectly, and neither this Prospectus or any
amendment or supplement hereto nor any other offering material or advertisements
in connection with such securities may be distributed or published, in or from
any country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
The Underwriter has agreed that (i) it has not offered or sold and, for a
period of six months following consummation of the Offering, will not offer or
sell any of the securities offered hereby to persons in the United Kingdom,
except to a person 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; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the securities offered hereby in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issuance of such securities if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements)(Exemptions) Order 1996, as amended, or is a
person to whom such document may otherwise lawfully be issued or passed on.
75
<PAGE> 78
The foregoing contains a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
The Company intends to apply for listing of the Units, the Common Stock and
the Warrants on the American Stock Exchange under the proposed symbols of "APU,"
"APX" and "APW."
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for the
Company by Morrison & Foerster LLP, New York, New York. Certain legal matters
will be passed upon for the Underwriter by Goldstein & DiGioia LLP, New York,
New York.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997
and 1998, and for each of the years in the three-year period ended June 30, 1998
have been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the June
30, 1998 consolidated financial statements contains an explanatory paragraph
that states that the Company's recurring losses from operations, net capital
deficiency and insufficient working capital raise substantial doubt about the
entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock, the Warrants and
the Units offered hereby. This Prospectus constitutes a part of the Registration
Statement and does not contain all of the information set forth therein and in
the exhibits thereto, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, the Warrants and the Units offered
hereby, reference is hereby made to such Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any document are
not necessarily complete and in each instance are qualified in their entirety by
reference to the copy of the appropriate document filed with the Commission. For
further information with respect to the Company and the Common Stock, the
Warrants and the Units, reference is hereby made to such exhibits and schedules
thereto, which may be inspected and copied at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Upon approval of the Units, the Common Stock and the Warrants for
listing on the American Stock Exchange, such reports, proxy and information
statements and other information also can be inspected at the principal office
of the American Stock Exchange, 86 Trinity Place, New York, New York 10006.
76
<PAGE> 79
ANTHRA PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1997 and 1998.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1996, 1997 and 1998 and for the period from June
25, 1985 (inception) to June 30, 1998 (unaudited)......... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from June 25, 1985 (inception) to June 30,
1998 (the period from June 25, 1985 (inception) to June
30, 1994 is unaudited).................................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1997 and 1998 and for the period from June
25, 1985 (inception) to June 30, 1998 (unaudited)......... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Anthra Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Anthra
Pharmaceuticals, Inc. and subsidiary (A Development Stage Enterprise) as of June
30, 1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended June 30, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anthra
Pharmaceuticals, Inc. and subsidiary (A Development Stage Enterprise) as of June
30, 1997 and 1998, and the results of their operations and their cash flows for
each of the years in the three-year period ended June 30, 1998, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations, has a net capital deficiency and has insufficient
working capital to fund its current operating requirements. These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG Peat Marwick LLP
Princeton, New Jersey
August 12, 1998
F-2
<PAGE> 81
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
June 30, 1997 and 1998
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, JUNE 30,
-------------------------- 1998
1997 1998 (NOTE 2)
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 795,428 2,911,953 2,911,953
Prepaid expenses.......................................... 38,105 48,640 48,640
------------ ----------- -----------
Total current assets............................... 833,533 2,960,593 2,960,593
Equipment, net (note 3)..................................... 75,957 91,930 91,930
Deferred offering costs..................................... -- 881,780 881,780
Restricted investment (note 8).............................. -- 150,000 150,000
Other assets................................................ 5,548 15,278 15,278
------------ ----------- -----------
Total assets....................................... $ 915,038 4,099,581 4,099,581
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 995,773 1,111,205 1,111,205
Accrued expenses (note 4)................................. 370,534 1,214,813 1,214,813
Due to related parties, net (note 6)...................... 65,062 -- --
------------ ----------- -----------
Total current liabilities and total liabilities.... 1,431,369 2,326,018 2,326,018
Contingent stock obligation (note 5)........................ -- 8,000,000 8,000,000
------------ ----------- -----------
Mandatorily redeemable convertible preferred stock (at
redemption and liquidation value which includes accreted
dividends of $2,769,998 and $3,423,057 at June 30, 1997
and 1998, respectively) (note 9); (converts into 3,150,588
pro forma common shares at June 30, 1998 upon consummation
of the offering contemplated herein):
Series A, $0.01 par value; 1,000,000 shares authorized,
issued and outstanding................................ 2,289,960 2,409,961 --
Series B, $0.01 par value; 680,000 shares authorized,
issued and outstanding................................ 2,323,288 2,459,281 --
Series C, $0.01 par value; 1,470,588 shares authorized,
issued and outstanding................................ 6,356,749 6,753,814 --
------------ ----------- -----------
10,969,997 11,623,056 --
------------ ----------- -----------
Stockholders' deficit (note 10):
Preferred stock (no designation), $0.01 par value; 1,000,000
shares authorized, none issued and outstanding............ -- -- --
Series D convertible preferred stock, $0.01 par value;
471,276 shares authorized, 339,095 shares issued and
outstanding at June 30, 1997; and 639,095 shares
authorized, issued and outstanding at June 30, 1998
(aggregate liquidation value of $7,067,624 at June 30,
1998) (converts into 639,095 pro forma common shares at
June 30, 1998 upon consummation of the offering
contemplated herein).................................... 3,391 6,391 --
Common stock, $0.01 par value; 6,000,000 shares and
15,000,000 shares authorized at June 30, 1997 and 1998,
respectively; 1,065,500 shares issued and outstanding at
June 30, 1997 and 1998, respectively; (4,855,183 pro
forma shares at June 30, 1998 upon conversion).......... 10,655 10,655 48,552
Additional paid-in capital................................ 3,368,707 8,674,378 20,265,928
Deferred compensation..................................... -- (924,821) (924,821)
Deficit accumulated during the development stage.......... (14,869,081) (25,616,096) (25,616,096)
------------ ----------- -----------
Total stockholders' deficit........................ (11,486,328) (17,849,493) (6,226,437)
Commitments and contingencies (notes 6 and 8)
------------ ----------- -----------
Total liabilities and stockholders' deficit........ $ 915,038 4,099,581 4,099,581
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 82
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Operations
For the years ended June 30, 1996, 1997 and 1998 and for
the period from June 25, 1985 (inception) to June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 25, 1985
YEARS ENDED JUNE 30, (INCEPTION) TO
-------------------------------------- JUNE 30,
1996 1997 1998 1998
----------- ---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Research and license revenues (note 5).................... $ 2,170,518 399,875 -- 2,570,393
Other revenue (note 5).................................... -- 1,288,240 -- 1,288,240
----------- ---------- ----------- -----------
2,170,518 1,688,115 -- 3,858,633
----------- ---------- ----------- -----------
Operating expenses:
Research and development (note 5)......................... 3,648,529 6,610,188 9,212,363 26,823,389
General and administrative (note 6)....................... 523,209 681,543 1,893,915 3,505,276
----------- ---------- ----------- -----------
Total operating expenses............................ 4,171,738 7,291,731 11,106,278 30,328,665
Other income (expense):
Interest income........................................... 111,519 138,905 359,263 888,944
Interest expense.......................................... -- -- -- (35,008)
----------- ---------- ----------- -----------
111,519 138,905 359,263 853,936
----------- ---------- ----------- -----------
Net loss............................................ (1,889,701) (5,464,711) (10,747,015) (25,616,096)
Accretion of undeclared dividends attributable to
mandatorily redeemable convertible preferred stock........ 653,059 653,059 653,059 3,423,057
----------- ---------- ----------- -----------
Net loss allocable to common stockholders........... $(2,542,760) (6,117,770) (11,400,074) (29,039,153)
=========== ========== =========== ===========
Basic and diluted net loss per share allocable to common
stockholders (note 2)..................................... $ (3.01) (5.79) (10.70)
=========== ========== ===========
Shares used in computing basic and diluted net loss per
share allocable to common stockholders (note 2)........... 843,993 1,056,733 1,065,500
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 83
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
For the period from June 25, 1985 (inception) to June 30, 1998
(the period from June 25, 1985 (inception) to June 30, 1994 is unaudited)
<TABLE>
<CAPTION>
SERIES D CONVERTIBLE DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED TOTAL
--------------------- ------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF NUMBER OF PAID-IN DEFERRED DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STAGE (DEFICIT)
---------- -------- --------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 25, 1985
(inception).............. -- $ -- -- $ -- -- -- -- --
Issuance of common stock
(note 9)............... -- -- 153,000 1,530 3,060 -- -- 4,590
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1985.... -- -- 153,000 1,530 3,060 -- -- 4,590
Net loss................. -- -- -- -- -- -- (30) (30)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1986.... -- -- 153,000 1,530 3,060 -- (30) 4,560
Net loss................. -- -- -- -- -- -- (4,629) (4,629)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1987.... -- -- 153,000 1,530 3,060 -- (4,659) (69)
Net loss................. -- -- -- -- -- -- (98) (98)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1988.... -- -- 153,000 1,530 3,060 -- (4,757) (167)
Net loss................. -- -- -- -- -- -- (352) (352)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1989.... -- -- 153,000 1,530 3,060 -- (5,109) (519)
Net loss................. -- -- -- -- -- -- (57,428) (57,428)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1990.... -- -- 153,000 1,530 3,060 -- (62,537) (57,947)
Issuance of common stock
(note 10).............. -- -- 562,500 5,625 139,625 -- -- 145,250
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (69,960) -- -- (69,960)
Net loss................. -- -- -- -- -- -- (490,526) (490,526)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1991.... -- -- 715,500 7,155 72,725 -- (553,063) (473,183)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (120,000) -- -- (120,000)
Net loss................. -- -- -- -- -- -- (554,447) (554,447)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1992.... -- -- 715,500 7,155 (47,275) -- (1,107,510) (1,147,630)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (199,288) -- -- (199,288)
Net loss................. -- -- -- -- -- -- (1,337,017) (1,337,017)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1993.... -- -- 715,500 7,155 (246,563) -- (2,444,527) (2,683,935)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (421,573) -- -- (421,573)
Net loss................. -- -- -- -- -- -- (2,452,640) (2,452,640)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1994.... -- -- 715,500 7,155 (668,136) -- (4,897,167) (5,558,148)
Issuance of common stock
(notes 5 and 10)....... -- -- 100,000 1,000 33,000 -- -- 34,000
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (2,617,502) (2,617,502)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1995.... -- -- 815,500 8,155 (1,288,195) -- (7,514,669) (8,794,709)
Exercise of warrants
(note 10).............. -- -- 50,000 500 7,000 -- -- 7,500
Issuance of Series D
convertible preferred
stock (notes 5 and
9)..................... 271,276 2,713 -- -- 2,996,941 -- -- 2,999,654
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (1,889,701) (1,889,701)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1996.... 271,276 2,713 865,500 8,655 1,062,687 -- (9,404,370) (8,330,315)
Issuance of Series D
convertible preferred
stock (note 5)......... 267,819 2,678 -- -- 2,959,079 -- -- 2,961,757
Conversion of Series D
preferred stock to
common stock........... (200,000) (2,000) 200,000 2,000 -- -- -- --
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (5,464,711) (5,464,711)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1997.... 339,095 3,391 1,065,500 10,655 3,368,707 -- (14,869,081) (11,486,328)
Issuance of Series D
convertible preferred
stock (note 5)......... 300,000 3,000 -- -- 4,497,000 -- -- 4,500,000
Deferred compensation
resulting from grant of
options (note 10)...... -- -- -- -- 1,461,730 (1,461,730) -- --
Amortization of deferred
compensation (note
10).................... -- -- -- -- -- 536,909 -- 536,909
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (10,747,015) (10,747,015)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1998.... 639,095 $ 6,391 1,065,500 $10,655 8,674,378 (924,821) (25,616,096) (17,849,493)
======== ======= ========= ======= ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 84
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
For the years ended June 30, 1996, 1997 and 1998 and the period
from June 25, 1985 (inception) to June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 25, 1985
YEARS ENDED JUNE 30, (INCEPTION) TO
-------------------------------------- JUNE 30,
1996 1997 1998 1998
----------- ---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,889,701) (5,464,711) (10,747,015) (25,616,096)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash compensation expense.......................... -- -- 536,909 536,909
Accrued interest converted to preferred stock......... -- -- -- 35,008
Depreciation expense.................................. 16,514 24,317 29,100 88,091
Change in assets and liabilities:
(Increase) decrease in other receivable............. (916,119) 916,119 -- --
Increase in prepaid expenses........................ (18,781) (13,130) (10,535) (48,640)
Increase in other assets............................ (2,698) -- (9,730) (15,278)
Increase in accounts payable........................ 142,635 780,371 115,432 1,111,205
Increase (decrease) in accrued expenses............. 260,585 (12,859) 844,279 1,214,813
Decrease in due to related parties, net............. (110,088) (81,667) (65,062) --
----------- ---------- ----------- -----------
Net cash used in operating activities............... (2,517,653) (3,851,560) (9,306,622) (22,693,988)
----------- ---------- ----------- -----------
Cash flows from investing activities:
Capital expenditures...................................... (50,072) (27,341) (45,073) (180,021)
Restricted investment..................................... -- -- (150,000) (150,000)
----------- ---------- ----------- -----------
Net cash used in investing activities............... (50,072) (27,341) (195,073) (330,021)
----------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of promissory notes................ -- -- -- 1,000,000
Proceeds from issuance of common stock and exercise of
warrants................................................ 7,500 -- -- 191,340
Proceeds from issuance of preferred stock................. 2,999,654 2,961,757 4,500,000 17,626,402
Proceeds from short-term borrowings....................... -- -- -- 321,280
Repayment of short-term debt.............................. -- -- -- (321,280)
Proceeds from contingent stock obligation................. -- -- 8,000,000 8,000,000
Deferred offering costs................................... -- -- (881,780) (881,780)
----------- ---------- ----------- -----------
Net cash provided by financing activities........... 3,007,154 2,961,757 11,618,220 25,935,962
----------- ---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 439,429 (917,144) 2,116,525 2,911,953
Cash and cash equivalents at beginning of period............ 1,273,143 1,712,572 795,428 --
----------- ---------- ----------- -----------
Cash and cash equivalents at end of period.................. $ 1,712,572 795,428 2,911,953 2,911,953
=========== ========== =========== ===========
Supplemental schedule of noncash financing activities:
Conversion of promissory notes to preferred stock......... $ -- -- -- 1,000,000
=========== ========== =========== ===========
Deferred compensation..................................... $ -- -- 1,461,730 1,461,730
=========== ========== =========== ===========
Accretion of undeclared dividends attributable to
mandatorily redeemable convertible preferred stock...... $ 653,059 653,059 653,059 3,423,057
=========== ========== =========== ===========
Conversion of preferred stock to common stock............. $ -- 2,000 -- 2,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 85
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1997 and 1998
(1) ORGANIZATION AND BUSINESS ACTIVITIES
Anthra Pharmaceuticals, Inc. (Anthra or the Company) was incorporated in
Delaware on June 25, 1985. The Company is a development stage pharmaceutical
company engaged in clinical development and obtaining regulatory approval for a
portfolio of proprietary cancer drugs. The Company is currently devoting
substantially all of its efforts towards conducting pharmaceutical development,
raising capital, obtaining regulatory approval for products under development
and recruiting personnel.
The accompanying consolidated financial statements include the results of
operations of the Company and its wholly-owned subsidiary, Anthra
Pharmaceuticals Limited (since December 18, 1997). All intercompany accounts and
transactions have been eliminated in consolidation.
The Company has not yet achieved profitable operations or positive cash
flow from operations. There is no assurance that profitable operations, if ever
achieved, could be sustained on a continuing basis. In addition, development
activities and the commercialization of proprietary medical therapies for the
treatment of cancer will require significant additional financing and regulatory
approval. The Company's deficit accumulated during the development stage
aggregated $25,616,096 through June 30, 1998 and the Company expects to incur
substantial losses in future periods. Further, the Company's future operations
are dependent on the success of the Company's research and commercialization
efforts and, ultimately, upon regulatory approval and market acceptance of the
Company's products.
The accompanying consolidated financial statements have been prepared on a
going-concern basis which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company incurred net losses of $1,889,701, $5,464,711 and
$10,747,015 for the years ended June 30, 1996, 1997 and 1998, respectively, has
an accumulated deficit of $25,616,096 at June 30, 1998, has a net capital
deficiency of $17,849,493 on June 30, 1998 and has insufficient working capital
to fund its current operations. The Company plans to obtain additional financing
through an initial public offering (Offering) (see note 12), private placements
and follow-on public offerings, license payments and payments from strategic
research and development arrangements and revenue from product sales. The
Company's ability to continue as a going concern is dependent upon the financing
efforts being successful. There can be no assurance, however, that the Company
will be successful in obtaining financing at the level needed for the long-term
development and commercialization of its planned products or on terms acceptable
to the Company. The consolidated financial statements do not include any
adjustments relating to the recoverability and classifications of reported asset
amounts or the amounts or classifications of liabilities which might result from
the outcome of that uncertainty.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All cash
and cash equivalents are held in United States financial institutions and money
market funds. To date, the Company has not experienced any losses on its cash
and cash equivalents. The carrying amount of cash and cash equivalents
approximates its fair value due to its short-term and liquid nature.
F-7
<PAGE> 86
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Equipment
Equipment, consisting primarily of computer and office equipment, is
recorded at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets, generally three to five years.
Expenditures for repairs and maintenance are expensed as incurred.
Research and Development
Research and product development costs are expensed as incurred.
Revenue Recognition -- Research and Development and Licensing Agreements
The Company has entered into various research and development and licensing
agreements (see note 5). Research and development revenue from
cost-reimbursement agreements is recorded as the related expenses are incurred,
up to contractual limits, and when the Company meets its performance obligations
under the respective agreements. Other contract revenue is recognized when
milestones are met and the Company's significant performance obligations have
been satisfied in accordance with the terms of the respective agreements.
Payments received that are related to future performance under such contracts
are deferred and recognized as revenue when earned. Revenue recognized is not
subject to repayment. Future losses, if any, on research and development
agreements are recognized in the period when identified by the Company.
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that such tax rate changes
are enacted.
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 amount reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Stock-based Compensation
The Company accounts for its stock option issuances in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such, deferred
compensation is recorded to the extent that the current market value of the
underlying stock exceeds the exercise price on the date both the number of
shares and the price per share are known (measurement date). Such deferred
compensation is amortized over the respective vesting periods of such option
grants. On June 30, 1996, the Company adopted the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation", which permits entities
to continue to apply the provisions of APB Opinion No. 25 for financial
reporting purposes and provide pro forma net loss and pro forma net loss per
share disclosures for employee stock option grants made in fiscal year 1996 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. Transactions with non-employees, in which goods or services are the
consideration received for the issuance of equity instruments, are accounted for
under the fair-value based method defined in SFAS No. 123.
F-8
<PAGE> 87
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Equity Security Transactions
Since inception, the Board of Directors has established the deemed fair
value of common stock, Series A, B and C mandatorily redeemable convertible
preferred stock (Series A, B and C), Series D convertible preferred stock
(Series D) (together, Convertible Preferred Stock), stock options and warrants
based upon facts and circumstances existing at the dates such equity
transactions occurred, including the price at which equity instruments were sold
to independent third parties.
Net Loss per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," by dividing the net loss allocable to common stockholders (including
accretion of undeclared dividends) by the weighted average number of shares of
common stock outstanding. As of June 30, 1998, the Company has certain options,
warrants and Convertible Preferred Stock (see notes 9 and 10), which have not
been used in the calculation of diluted net loss per share because to do so
would be anti-dilutive. As such, the numerator and the denominator used in
computing both basic and diluted net loss per share allocable to common
stockholders are equal.
Pursuant to Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock issued for nominal
consideration during the periods presented herein and through the filing of the
registration statement for the Offering are to be reflected in a manner similar
to a stock split or stock dividend for which retroactive treatment is required
in the calculation of pro-forma basic net loss per share; the Company did not
have any such issuances. Similarly, common stock and potential common stock
issued for nominal consideration during the periods presented herein and through
the filing of the registration statement for the Offering are to be reflected in
a manner similar to a stock split or stock dividend for which retroactive
treatment is required in the calculation of pro forma diluted net loss per
share, even if anti-dilutive; the Company did not have any such issuances.
Pro Forma Net Loss per Share and Pro Forma Balance Sheet (Unaudited)
The Company is currently attempting to obtain agreements from all of the
holders of Convertible Preferred Stock to convert their shares of Convertible
Preferred Stock into a like number of shares of Common Stock upon the closing of
the Offering. If the Company does not obtain such conversion agreements, the
Convertible Preferred Stock outstanding at June 30, 1998 would remain
outstanding under their current terms. The following pro forma basic and diluted
net loss per share allocable to common stockholders (excluding accretion of
undeclared dividends) and shares used in computing pro forma basic and diluted
net loss per share allocable to common stockholders have been presented assuming
the Company is successful in its attempt to obtain agreements from all of the
holders of Convertible Preferred Stock to convert their shares and reflecting
the resultant conversion into shares of common stock of the Convertible
Preferred Stock upon completion of the Offering using the if converted method
from their respective dates of issuance:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1998
----------
<S> <C>
Pro forma basic and diluted net loss per share allocable to
common stockholders....................................... $ (2.25)
==========
Shares used in computing pro forma basic and diluted net
loss per share allocable to common stockholders........... 4,768,060
==========
</TABLE>
F-9
<PAGE> 88
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
The unaudited pro forma presentation of the June 30, 1998 consolidated
balance sheet has been prepared assuming the Company is successful in its
attempt to obtain agreements from all of the holders of Convertible Preferred
Stock to convert their shares and reflecting the resultant conversion of the
3,789,683 shares of Convertible Preferred Stock into 3,789,683 shares of common
stock as of June 30, 1998.
(3) EQUIPMENT
Equipment is comprised of the following at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Furniture and fixtures................................. $ 19,163 28,500
Computer and equipment................................. 109,762 147,881
Laboratory equipment................................... 3,640 3,640
Leasehold improvements................................. 2,383 --
-------- --------
134,948 180,021
Less accumulated depreciation.......................... 58,991 88,091
-------- --------
$ 75,957 91,930
======== ========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses is comprised of the following at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1998
-------- ---------
<S> <C> <C>
Contract research and development..................... $292,966 501,436
Professional and consulting fees...................... -- 22,850
Payroll and related costs............................. 62,568 104,963
Offering costs........................................ -- 552,000
Other................................................. 15,000 33,564
-------- ---------
$370,534 1,214,813
======== =========
</TABLE>
(5) RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENTS
University of Tennessee Research Corporation
In December 1990, the Company entered into a license agreement with the
University of Tennessee Research Corporation (UTRC) (which is not owned by the
University of Tennessee) covering the commercial development of its technology.
The Company is also liable to UTRC for annual royalty fees based on net sales,
if any, as defined in the agreement. Annual minimum royalties of $25,000 and
$50,000 are required for 1997 and for each year thereafter, respectively, which
is recorded as research and development expense. The Company's obligation to pay
royalties expires upon the expiration of the related patent. The license
agreement is in effect until the later to occur of the expiration of all patent
rights or seventeen years from Anthra's last acceptance of a license to an
unpatented improvement to the technology (see note 6).
F-10
<PAGE> 89
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Dana Farber Licensing Agreement
In November 1990, the Company entered into a licensing agreement with the
Dana Farber Cancer Institute (Dana-Farber) to acquire the unrestricted exclusive
worldwide patent and know-how license on certain technology, subject to certain
restrictions and limitations in an agreement between Dana-Farber and the U.S.
Department of Health and Human Services dated April 22, 1985. As a condition of
the agreement, the Company will grant back to Dana-Farber the right to conduct
research on a royalty-free basis on the technology. The Company is liable to
Dana-Farber for annual royalty fees based on net sales, if any, as defined in
the agreement. The Company agreed to pay Dana-Farber a minimum royalty of
$15,000 for each twelve-month period commencing on the anniversary of a New Drug
Application (NDA) approval in the United States of the technology. The
obligation to pay minimum royalties shall cease upon the termination of this
agreement. Absent any default, the agreement terminates in July 1999 or upon 90
days notice by Anthra.
Schering Development and License Agreement
In September 1995, the Company and Schering AG (Schering) entered into a
development and license agreement. Under this agreement the Company agreed to
conduct the research and development activities to prepare a certain product for
commercialization. Schering agreed to reimburse the Company for certain research
and development cost associated with the commercial development of the products
in certain territories. Under the agreement the Company granted to Schering the
exclusive, royalty bearing license in the North America and European Territories
to market, sell, and distribute the product. The Company retained co-promotion
rights in each territory, subject to certain limitations. In return, Schering
agreed to make certain lump and royalty payments to the Company based on certain
occurrences. During fiscal 1996 and 1997, the Company was entitled to
reimbursement of $2,170,518 and $199,875, respectively, which is recorded as
revenue in the accompanying statements of operations. In connection with this
agreement, Schering Berlin Venture Corporation, an affiliate of Schering,
purchased 271,276 shares of Series D for $2,999,654 (see note 9).
On July 16, 1996, the Company entered into a termination, settlement and
investment agreement under which Schering paid the Company a total of $3,500,000
for 200,000 shares of Series D and for Anthra's release of Schering from the
September 1995 agreement. The Company allocated $2,211,760 of this amount to the
sale of the Series D utilizing a value of approximately $11 per share (the per
share price being ascribed to other Series D financings). The remaining
$1,288,240 of the payment is recorded as other revenue in fiscal 1997 as a fee
for release from the September 1995 agreement. The $3,500,000 was used in fiscal
1997 for research relating to the originally licensed technology, as required by
the agreement. The Company owns all rights, title and interest in and to any
such research, data, know how, intellectual property or any other property
resulting from the research and is required to pay Schering royalties on future
product sales, if any. Schering subsequently converted the 200,000 shares of
Series D into 200,000 shares of common stock in accordance with the terms of the
preferred stock.
Prodesfarma Exclusive License Agreement
On April 17, 1997, the Company entered into an exclusive license agreement
with Prodesfarma, S.A. (Prodesfarma). Under the agreement, Prodesfarma obtained
the exclusive distribution rights to a certain product in Spain and Portugal for
an initial term of ten years from the first commercial sale. Prodesfarma made a
nonrefundable payment of $200,000, which has been recorded as revenue, to the
Company upon the signing of this agreement and is required to make further
payments aggregating up to $400,000 upon the achievement of certain milestones.
The Company is responsible for the remaining development costs and to supply the
product to Prodesfarma at prices described in the agreement. The agreement may
be terminated by
F-11
<PAGE> 90
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
either party in certain circumstances. Concurrent with the license agreement,
Prodesfarma purchased 67,819 shares of Series D for $749,997.
Medeva Agreement
On July 15, 1997, the Company entered into a development agreement with
Medeva California Inc. (Medeva). Under this agreement, Medeva was granted an
exclusive royalty bearing license to sell, distribute and market a certain
product for certain indications, in the United States, upon regulatory approval.
In exchange, Medeva made a non-refundable payment of $8.0 million on signing the
agreement, and subject to certain restrictions and limitations, is required to
make future payments aggregating up to $18.2 million upon the achievement of
certain milestones. In September 1998, an additional $2.1 million payment
(unaudited) was made by Medeva for the Company having achieved a certain
milestone. The Company is responsible for most remaining development costs,
although Medeva will fund certain costs related to the specific indications
covered under this agreement. The Company will also supply the product to Medeva
at certain stated prices. If regulatory approval is not received for any of the
indications covered by this agreement by December 31, 2002, Medeva will have the
right to obtain, for no additional consideration, the number of common shares
equal to 20% of the then issued and outstanding voting equity securities of the
Company. Accordingly, the $8.0 million payment has been recorded as a contingent
stock obligation in the consolidated balance sheet at June 30, 1998. Upon
receipt of regulatory approval for one of the indications covered by the
agreement on or before December 31, 2002, the Company would account for that
portion of the $8 million incurred on development costs under the agreement
since July 15, 1997 as research and development revenue. Any portion of the $8
million not spent on development expenditures by the time of the regulatory
approval would be accounted for as deferred revenue and recognized as revenue as
development expenditures are made. Should the necessary regulatory approval not
be received by December 31, 2002, the $8 million would be accounted for as a
contribution to capital for the shares issued to Medeva. Any excess of the fair
value of the common stock issued to Medeva over the $8 million would represent a
benefit to Medeva and any excess of the $8 million over the fair value of the
common stock would represent a benefit to the Company. This agreement expires on
the later of loss of any orphan drug exclusivity, expiration of related patents
or twelve years. Upon Anthra's achievement of a certain future milestone under
the agreement and its receipt from Medeva of the payment related thereto, Anthra
will be obligated to make a $300,000 payment to the financial intermediary that
introduced Anthra to Medeva.
Nycomed Agreement
In October 1997, the Company entered into an exclusive license, sales and
distribution agreement with Nycomed Pharma AS (Nycomed). Under the agreement,
Nycomed obtained the exclusive distribution rights to a certain product in
certain countries for an initial term of ten years from the first European
regulatory approval, as defined. The agreement provides for future payments by
Nycomed, which are subject to certain restrictions and limitations, aggregating
up to $2 million upon achieving certain milestones. The Company will grant to
Nycomed upon receipt of certain of these milestone payments, options to purchase
up to an aggregate of 66,666 shares of either common or Series D, as determined
in accordance with the agreement, for $15 per share. The Company will also grant
to Nycomed upon the payment of a certain milestone payment, options to purchase
shares of common or Series D, as determined in accordance with the agreement,
with a fair market value, as defined, of $1 million. The Company is responsible
for the remaining development costs and to supply the product to Nycomed at
prices described in the agreement. The agreement may be terminated by either
party in certain circumstances. Concurrent with the license, sales and
distribution agreement, Nycomed purchased 300,000 shares of Series D for
$4,500,000. These shares have the same rights as the previously issued Series D.
F-12
<PAGE> 91
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Bonefos Term Sheet
In December 1997, the Company signed a term sheet with affiliates of
Schering to acquire the exclusive United States development and marketing rights
to a certain product for certain indications. Upon signing of the letter of
intent, the Company paid a nonrefundable amount of $250,000 to Schering in
consideration for a period of exclusivity in which to negotiate final
agreements. The amount was charged to operations in fiscal 1998. If final
development and manufacturing agreements are consummated as contemplated in the
term sheet, the Company would make additional non-refundable payments totaling
$3,500,000 by December 31, 1998. Schering would have the option to acquire from
the Company the exclusive right to market the product in the United States for
certain indications for payments aggregating up to $21,000,000, plus royalties.
In July 1998, the Company signed an Option Agreement with the affiliates of
Schering which extended the period of exclusivity, as per the term sheet signed
in December 1997 through September 30, 1998. The Company paid a nonrefundable
amount of $200,000 to Schering in consideration of this extension. This would be
credited towards the first payment which is due upon executing the definitive
development and manufacturing agreements. If executed, the Company must also
meet certain financial conditions on an on-going basis under the definitive
development agreement or the agreement may be terminated.
(6) RELATED PARTY TRANSACTIONS
The Company previously had an agreement with an executive officer of the
Company to provide certain administrative services and maintain an office for a
monthly fee of $4,166 per month. Expenses charged to the Company under this
agreement aggregated $25,000, $0 and $0 in fiscal 1996, 1997 and 1998,
respectively. This officer also had not received payment for salary and various
expenses on the Company's behalf in the early years of the Company's existence.
Payables to this executive, net of receivables from this executive of $67,925 at
June 30, 1997, were $65,062 at June 30, 1997 and $0 at June 30, 1998.
The Company, on a monthly basis, has provided an unrestricted gift for
research support to the University of Tennessee at which a founder and director
of the Company is employed. Expenses charged to the Company for such
unrestricted gift aggregated $121,200 in both fiscal 1997 and 1998.
The Company has employed a consulting firm, whose owner is a relative of an
executive officer of the Company. Fees to the firm totaled $64,000 from
inception through June 30, 1998.
The Company has agreements with three executive officers to provide for
certain payments to these executives upon a change in control of the Company, as
defined, provided they continue to provide certain services to the Company.
(7) INCOME TAXES
At June 30, 1998, the Company had available net operating loss
carryforwards ("NOL") of approximately $22,500,000 and $22,200,000 for Federal
and state income tax reporting purposes, respectively, which are available to
offset future Federal and state taxable income, if any, through fiscal 2013 and
2005, respectively. The Company also has research and development tax credit
carryforwards of approximately $721,000 and $127,000 for Federal and state
income tax reporting purposes, respectively, which are available to reduce
Federal and state income taxes, if any, through fiscal 2013 and 2005,
respectively.
The Tax Reform Act of 1986 (the Act) provides for a limitation on the
annual use of NOL and research and development tax credit carryforwards
(following certain ownership changes, as defined by the Act) which could
significantly limit the Company's ability to utilize these carryforwards. The
Company has experienced various ownership changes, as defined by the Act, as a
result of past financings. Accordingly, the Company's
F-13
<PAGE> 92
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
ability to utilize the aforementioned carryforwards may be limited.
Additionally, because U.S. tax laws limit the time during which these
carryforwards may be applied against future taxes, the Company may not be able
to take full advantage of these attributes for Federal income tax purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at June 30, 1997
and 1998 are presented below:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 5,382,992 8,992,994
Tax credit carryforward........................ 334,365 847,462
Accrual to cash adjustment..................... 572,548 970,407
Deferred compensation.......................... -- 214,764
----------- ------------
Total gross deferred tax assets........ 6,289,905 11,025,627
Less valuation allowance....................... (6,284,988) (11,018,100)
----------- ------------
Total deferred tax assets.............. 4,917 7,527
----------- ------------
Deferred tax liability:
Equipment, due to differences in
depreciation................................ 4,917 7,527
----------- ------------
Total deferred tax liability........... 4,917 7,527
----------- ------------
Net deferred taxes..................... $ -- --
=========== ============
</TABLE>
The net change in the valuation allowance for the years ended June 30,
1996, 1997 and 1998 were increases of $740,319, $2,422,015 and $4,733,112,
respectively, related primarily to additional net operating losses incurred by
the Company which are not currently deductible.
(8) COMMITMENTS AND CONTINGENCIES
The Company has leases for office space in New Jersey and the United
Kingdom, under which the Company incurred rental expense for fiscal 1996, 1997
and 1998 of $92,874, $107,314 and $124,019, respectively.
Minimum lease payments under noncancellable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
----------
<S> <C>
1999.................................................... $149,064
2000.................................................... 83,547
2001.................................................... 15,315
========
$247,926
========
</TABLE>
The Company had an outstanding $150,000 irrevocable commercial letter of
credit as of June 30, 1998. The contract amount of this letter of credit
approximates its fair value. The letter of credit is secured by a $150,000
certificate of deposit which is required to be held at the financial institution
which issued the letter of credit.
F-14
<PAGE> 93
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
(9) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED
STOCK
The Company completed the sale of Series A, Series B, Series C and Series D
in fiscal 1991, 1993, 1994, 1996, 1997 and 1998 (see note 5). Aggregate net cash
proceeds from such equity transactions totaled $17,626,402 ($18,661,410
including cash received for promissory notes and accrued interest, all converted
to preferred stock).
The holders of Series A, Series B, Series C and Series D vote together with
all other classes and series of stock of the Company as a single class on all
actions to be taken by the stockholders of the Company. Each share of preferred
stock entitles the holder to an equal number of votes as the number of common
shares into which each share of preferred stock is convertible.
The holders of Series A, Series B and Series C shall be entitled to
receive, out of funds legally available, when and if declared by the Board of
Directors, quarterly dividends at the rate per annum of $0.12 per share of
Series A, $0.20 per share of Series B and $0.27 per share of Series C. The
dividends accrue daily, whether or not earned or declared, and are cumulative.
Cumulative dividends in arrears at June 30, 1998 were $3,423,057 in the
aggregate for Series A, B and C. Such amounts have been accreted in the
accompanying consolidated financial statements for the respective periods in
which they accumulated. As of June 30, 1998, no such dividends have been
declared. Due to the mandatory redemption feature, these securities are
classified at their accreted value outside of stockholders' deficit in the
accompanying consolidated balance sheets.
The holders of Series A, Series B, Series C and Series D are entitled to
liquidation preferences over all other types of capital stock in accordance with
the following amounts (same per share amounts as paid by such preferred
stockholders): $1.50 per share for the Series A, $2.50 per share for the Series
B, $3.40 per share for the Series C and $11.06 per share for the Series D plus
in the case of each share of Series A, Series B and Series C, an amount equal to
all cumulative dividends unpaid (whether or not declared) and any other
dividends declared but not paid. The computation of the dividends will be
computed to the date payment is made available.
The holders of Series A, Series B, Series C and Series D have the right at
any time to convert any share of preferred stock into fully-paid nonassessable
shares of common stock at a conversion price of $1.50, $2.50, $3.40 and $11.06
per share, respectively. If at any time the Company effects a firm commitment
underwritten public offering of shares of common stock in which the aggregate
price paid for such shares by the public is at least $10,000,000 and the price
paid per share is at least $7.50 per share then effective on the closing of the
sale of such shares, all outstanding shares of Series A, Series B, and Series C
automatically convert to shares of common stock. In the case of Series D, if the
Company effects a firm commitment underwritten public offering of shares of
common stock in which the aggregate price paid for such shares by the public is
at least $10,000,000 and the price paid per share is at least $11.06 or the
Company's common stock is publicly traded on a national securities exchange and
the average of the closing sale prices for the common stock within any 10
consecutive trading day period is $11.06 or more, then all outstanding shares of
Series D automatically convert to shares of common stock.
F-15
<PAGE> 94
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Commencing January 27, 2000, the Company is required to redeem the
outstanding shares of Series A, Series B and Series C at liquidation prices,
including cumulative dividends, in the percentages per year shown in the
following schedule:
<TABLE>
<S> <C>
2000........................................................ 10%
2001........................................................ 15%
2002........................................................ 25%
2003........................................................ 25%
2004........................................................ 25%
</TABLE>
These mandatory redemptions are subject to waiver by holders of 60% of the
shares of Series A, B and C in the aggregate.
(10) COMMON STOCK AND COMMON STOCK OPTIONS
The following transactions were consummated using prices determined by the
Board of Directors to be the deemed fair value at the date of the respective
transaction:
- In June 1985, the Company issued 153,000 shares of common stock to
executive officers for the price of $0.03 per share.
- In October 1990, the Company issued 562,500 shares of common stock to an
executive officer and consultant for the price of approximately $.26 per
share.
- In July 1994, the Company issued 20,000 shares of common stock to an
executive officer for the price of $.34 per share as part of a stock
subscription and shareholder agreement.
- In January 1995, the Company issued 80,000 shares of common stock to an
executive officer for the price of $.34 per share as part of the
aforementioned subscription and shareholder agreement.
- In December 1995, the Company issued 50,000 shares of common stock to
Advanced Technology Ventures III, LP for the price of $.15 per share upon
exercise of stock warrants granted in December 1990.
In December 1990, the Company adopted the 1990 Stock Plan (the 1990 Plan)
whereby incentive and nonqualified stock options may be granted to directors,
employees, and consultants to purchase an aggregate of 374,187 (increased to
1,700,000 in 1997) shares of the Company's common stock. The incentive stock
options are to be granted at no less than fair market value at the measurement
date (usually the grant date), as determined by the Board of Directors. The
nonqualified option prices are to be determined by the Board of Directors and
may be less than the fair market value. The options are exercisable generally
for a period of ten years after the date of grant and generally vest over a
five-year period which in some cases may be accelerated on the occurrence of
certain future events.
The Company applies APB Opinion No. 25 in accounting for the 1990 Plan.
Certain employees of the Company were granted options to acquire 333,000 shares
of common stock at exercise prices ranging from $1.00 to $3.00 per share during
fiscal 1998. Certain employees of the Company were granted performance-based
options to acquire 192,000 shares of common stock at exercise prices ranging
from $.34 to $1.00 per share during fiscal 1995, 1996, 1997 and 1998 for which
the measurement date occurred during fiscal 1998 when the Company amended these
option terms to include a fixed vesting schedule (at the end of five years from
the original date of grant) without regard for the performance criteria. The
exercise price of all of these options was equal to the deemed fair value of the
common stock on the date of grant, as determined by the Board of Directors.
However, for financial reporting purposes, the difference between the deemed
fair value
F-16
<PAGE> 95
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
and the respective exercise prices at the measurement dates has been recorded as
deferred compensation in the amount of $1,461,730 and is being amortized over
the five-year vesting period. Compensation expense for the aforementioned
options aggregated $536,909 for fiscal 1998.
Had the Company determined compensation cost for its stock options under
SFAS 123 using the minimum value method at the measurement date, the Company's
net loss allocable to common stockholders and net loss per share allocable to
common stockholders would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss allocable to common
stockholders:
As reported....................... $(2,542,760) (6,117,770) (11,400,074)
Pro forma......................... (2,544,606) (6,133,798) (11,529,952)
Basic and diluted net loss per share
allocable to common stockholders:
As reported....................... $ (3.01) (5.79) (10.70)
Pro forma......................... (3.01) (5.80) (10.82)
</TABLE>
Pro forma net loss allocable to common stockholders and net loss per share
allocable to common stockholders reflects only options granted in fiscal 1996,
1997 and 1998. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net loss
allocable to common stockholders and net loss per share allocable to common
stockholders amounts presented above because compensation cost is reflected over
the options' vesting period and compensation expense for options granted prior
to June 30, 1995 is not considered.
A summary of activity under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Balance, June 30, 1995..................................... 522,187 $0.15 -- 0.34
Granted.................................................. 198,000 0.70
Cancelled................................................ (7,500) 0.25
---------
Balance, June 30, 1996..................................... 712,687 0.15 -- 0.70
Granted.................................................. 75,500 0.70
Cancelled................................................ (54,200) 0.15 -- 0.34
---------
Balance, June 30, 1997..................................... 733,987 0.15 -- 0.70
Granted.................................................. 824,500 0.70 -- 8.00
Cancelled................................................ (23,000) 0.70 -- 3.00
---------
Balance, June 30, 1998..................................... 1,535,487 0.15 -- 8.00
=========
Shares exercisable at June 30, 1998........................ 509,757 $0.15 -- 3.00
=========
</TABLE>
Options granted in fiscal 1998 include 175,000 options which have a per
share exercise price equal to the fair market value on the date of the
occurrence of certain future events.
F-17
<PAGE> 96
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
At June 30, 1998, the 1990 Plan had the following options outstanding and
exercisable by price range as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE OF CONTRACTUAL PRICE PER OF PRICE PER
PRICES SHARES LIFE SHARE SHARES SHARE
- ---------- --------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.15-0.70 724,987 5 years $0.37 483,087 $0.23
1.00-3.00 357,500 9 years 2.04 26,670 3.00
8.00 278,000 10 years 8.00 -- --
FMV(1) 175,000 10 years FMV(1) -- --
--------- -------
1,535,487 509,757
========= =======
</TABLE>
- ---------------
(1) Exercise price is equal to the fair market value on the date of the
occurrence of certain future events.
The per share weighted-average fair value of stock options granted during
fiscal 1996, 1997 and 1998 was $.28, $.28 and $5.29, respectively, on the
measurement date using the minimum value method, with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Expected life in years................................ 8 8 8
Risk-free interest rate............................... 6.5% 6.5% 6.0%
Volatility............................................ 0% 0% 0%
Expected dividend yield............................... 0% 0% 0%
</TABLE>
(11) 401(K) SALARY REDUCTION PLAN
In June 1998, the Company adopted a 401(k) Salary Reduction Plan (the
401(k) Plan) available to all employees meeting certain eligibility
requirements. The 401(k) Plan permits participants to contribute up to 15% of
their annual salary not to exceed the limits established by the Internal Revenue
Code. All contributions made by participants vest immediately in the
participant's account. The Company did not make any matching contributions in
fiscal 1998 in accordance with the terms of the 401(k) Plan.
(12) SUBSEQUENT EVENT (UNAUDITED)
Initial Public Offering
On September 24, 1998, the Board of Directors authorized the filing of a
registration statement with the SEC for the sale of up to 2,300,000 units, each
unit consisting of one share of common stock and one warrant to purchase one
share of common stock.
F-18
<PAGE> 97
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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 UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION 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.......................... 8
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Consolidated Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 32
Management............................ 56
Principal Stockholders................ 65
Certain Relationships and Related
Transactions........................ 67
Description of Securities............. 68
Shares Eligible for Future Sale....... 72
Underwriting.......................... 74
Legal Matters......................... 76
Experts............................... 76
Additional Information................ 76
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 CALENDAR DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF THE
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE CLASS A REDEEMABLE
COMMON STOCK
PURCHASE WARRANT
[ANTHRA PHARMACEUTICALS, INC. LOGO]
--------------------
PROSPECTUS
--------------------
JANSSEN/MEYERS
ASSOCIATES, L.P.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
Registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
Commission Registration Fee................................. $ 8,230.50
American Stock Exchange Listing Fee......................... $25,000.00
NASD Filing Fee............................................. $ +
*Blue Sky Fees and Expenses (including legal fees).......... $ +
*Accounting Fees and Expenses............................... $ +
*Legal Fees and Expenses.................................... $ +
*Consulting Fees............................................ $ +
*Printing and Engraving..................................... $ +
*Registrar and Transfer Agent's Fees........................ $ +
*Underwriter's Non-Accountable Expense Allowance............ $ +
*Underwriter's Consulting Agreement......................... $ +
*Underwriter's Expenses..................................... $ +
*Miscellaneous Expenses..................................... $ +
----------
Total............................................. $ +
==========
</TABLE>
- ---------------
* Estimated
+ To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended Certificate of Incorporation provides that a Director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty as a director, except for
liability, to the extent imposed by applicable law, for: (i) any breach of the
Director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) liability for payments of dividends or stock purchases
or redemptions in violation of Section 174 of the DGCL; or (iv) any transaction
from which the Director derived an improper personal benefit. In addition, the
Amended Certificate of Incorporation provides that the Company shall, to the
fullest extent permitted by Section 145 of the DGCL, as the same exists or may
hereafter be amended and supplemented, indemnify any and all persons who it
shall have the power to indemnify under such law from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for therein is not exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested Directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and continues as to a person who has ceased to be a
Director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, to the extent required by the DGCL, an advancement of expenses incurred by
an indemnitee shall be made only upon delivery to the Company of an undertaking,
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under the relevant provisions of the DGCL or otherwise. The
rights to indemnification and to the advancement of expenses conferred are
contract rights and continue as to an indemnitee who has ceased to be
II-1
<PAGE> 99
a Director, officer, employee or agent and inures to the benefit of the
indemnitee's heirs, executors and administrators.
Section 145 of the DGCL provides that indemnification is permissible only
when the Director, officer, employee, or agent acted in good faith and in a
manner such person 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 the conduct was unlawful. Section
145 of the DGCL also precludes indemnification in respect of any claim, issue,
or matter as to which an officer, Director, employee, or agent shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite such adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The Company has agreed to indemnify the Underwriter and its controlling
persons, and the Underwriter has agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of the Exhibits hereto.
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 20, 1995, the Company issued 271,276 shares of its Series D
Convertible Preferred Stock to Schering Berlin Venture Corporation at an
aggregate price of approximately $3.0 million pursuant to a Series D Convertible
Preferred Stock Purchase Agreement between such parties. The sale of stock to
Schering Berlin Venture Corporation was an integral part of, and condition
precedent to, the Development Agreement. In July 1996, the Company and Schering
AG, Germany converted the Development Agreement to the Support Agreement for
which Schering AG, Germany paid $3.5 million in consideration for its release
from the Development Agreement and 200,000 shares of the Company's Series D
Convertible Preferred Stock, which shares Schering AG, Germany subsequently
converted to Common Stock.
On April 17, 1997, the Company issued 67,819 shares of its Series D
Convertible Preferred Stock to Almirall at an aggregate price of approximately
$750,000 in connection with the Almirall Agreement.
On July 15, 1997, the Company entered into the Medeva Agreement. Under the
Medeva Agreement, in the event that the Company has not obtained certain NDA
approvals for Valstar(TM) by December 31, 2002, Medeva has the right to require
the Company to issue to it such number of shares of Common Stock equal to 20% of
the outstanding voting equity securities of the Company at the time of its
exercise of such right. As of the date hereof, no equity securities of the
Company have been issued to Medeva pursuant to the Medeva Agreement.
On October 14, 1997, the Company issued 300,000 shares of its Series D
Convertible Preferred Stock to Nycomed at an aggregate price of $4.5 million in
connection with the Nycomed Agreement.
Exemption from registration for each transaction described above was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering.
II-2
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1 Form of Underwriting Agreement by and between the
Underwriter and the Company.[ ]
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.#
3.2 Bylaws of the Company.#
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.#
4.3 Fifth Amended and Restated Registration Rights Agreement,
dated October 14, 1997, by and among the Company, Advanced
Technology Ventures III, L.P., Sevin Rosen Fund III, L.P.,
Allstate Insurance Company, Allstate Life Insurance Company,
Aperture Associates, L.P., Schering Berlin Venture
Corporation, Prodesfarma, S.A. and Nycomed Pharma AS.#
4.4 Form of Unit and Warrant Agreement between the Company and
American Stock Transfer & Trust Company.[ ]
4.5 Form of Underwriter's Option Agreement for Units by and
between the Company and the Underwriter.[ ]
4.6 Form of Warrant Certificate (incorporated by reference into
Exhibit 4.4).[ ]
4.7 Form of Unit Certificate (incorporated by reference into
Exhibit 4.4).[ ]
5 Form of Opinion of Morrison & Foerster LLP.[ ]
10.1 Agreement, dated November 6, 1990, by and between the
Company and Dana-Farber Cancer Institute.*#
10.2 Letter agreement, dated December 5, 1990, by and between the
Company and Michael C. Walker.#
10.3 Letter agreement, dated December 5, 1990, by and between the
Company and Mervyn Israel.#
10.4 Exclusive Supply Agreement, dated June 1, 1991, by and
between the Company and Omnichem S.A.*#
10.5 Termination, Settlement and Investment Agreement, dated July
16, 1996, by and between the Company and Schering AG,
Germany (f/k/a Schering AG).*#
10.6 Agreement, dated September 1996, between the Company and
Allen L. Thunberg.#
10.7 Agreement, dated September 1996, between the Company and
Michael C. Walker.#
10.8 [Intentionally omitted].
10.9 Exclusive License Agreement, dated April 17, 1997, by and
between the Company and Prodesfarma, S.A. (a/k/a Almirall
Prodesfarma, S.A.).*#
10.10 Sublease, dated July 2, 1997, by and between the Company and
the Presbyterian Homes of New Jersey Foundation, Inc.#
10.11 Development Agreement, dated July 15, 1997, by and between
the Company and Medeva California Inc.*[ ]
10.12 Supply Agreement, dated September 11, 1997, by and between
the Company and Genchem Pharma Ltd.*#
10.13 1990 Stock Plan, as amended.#
10.14 Exclusive License, Sale and Distribution Agreement, dated
October 14, 1997, by and between the Company and Nycomed
Pharma AS.*#
10.15 Term Sheet, dated December 12, 1997, by and among Berlex
Laboratories, Inc., the Company and Leiras Oy.*#
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.16 Underlease of Suite B Second Floor Premises known as The
Malt House, Malt House Square, Princes Risborough,
Buckinghamshire, dated December 27, 1997, by and between the
Company and Allen-Martin Conservation Limited.#
10.17 ABR Benefits Services, Inc. Regional Prototype Defined
Contribution Plan and Trust, adopted by the Company and
effective as of June 1, 1998.[ ]
10.18 Adoption Agreement for the ABR Benefits Services, Inc.
Regional Prototype Standardized Cash or Deferred Profit
Sharing Plan and Trust (with Pairing Provisions), dated June
1, 1998.[ ]
10.19 Option Agreement, dated July 6, 1998, by and between the
Company, Berlex Laboratories, Inc., and Leiras Oy.[ ]
10.20 Form of Financial Consultant Agreement between the
Underwriter and the Company.[ ]
21 Subsidiary.#
23.1 Consent of KPMG Peat Marwick LLP. [ ]
23.2 Consent of MedProbe, Inc.#
23.3 Consent of Morrison & Foerster LLP (incorporated by
reference into Exhibit 5).[ ]
24 Powers of Attorney (set forth on signature page to the
Registration Statement or included in Exhibit 24 to
Amendment No. 1 to the Registration Statement).#
27.1 Summary Financial Data Schedule.[ ]
</TABLE>
- ---------------
+ To be filed by amendment.
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Omitted portions will be filed separately with the Commission.
# Previously filed.
[ ] Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the 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 in the Offering, 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 Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the 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 the
Registration Statement as of the time it was declared effective.
II-4
<PAGE> 102
(2) For the purposes 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on September 25, 1998.
ANTHRA PHARMACEUTICALS, INC.
By: /s/ MICHAEL C. WALKER
------------------------------------
Michael C. Walker
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ MERVYN ISRAEL* Director, Chairman of the Board and September 25, 1998
- ------------------------------------------ Secretary
Mervyn Israel
/s/ MICHAEL C. WALKER Director, Chief Executive Officer and September 25, 1998
- ------------------------------------------ President (Principal Executive
Michael C. Walker Officer)
/s/ KAREN KRUMEICH* Chief Financial Officer and Vice September 25, 1998
- ------------------------------------------ President -- Finance (Principal
Karen Krumeich Financial and Accounting Officer)
/s/ PAUL G. GOODING* Director September 25, 1998
- ------------------------------------------
Paul G. Gooding
/s/ WILLIAM ENGBERS* Director September 25, 1998
- ------------------------------------------
William Engbers
*By: /s/ MICHAEL C. WALKER
- ------------------------------------------
Michael C. Walker
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 104
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement by and between the
Underwriter and the Company.[ ]
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.#
3.2 Bylaws of the Company.#
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.#
4.3 Fifth Amended and Restated Registration Rights Agreement,
dated October 14, 1997, by and among the Company, Advanced
Technology Ventures III, L.P., Sevin Rosen Fund III, L.P.,
Allstate Insurance Company, Allstate Life Insurance Company,
Aperture Associates, L.P., Schering Berlin Venture
Corporation, Prodesfarma, S.A. and Nycomed Pharma AS.#
4.4 Form of Unit and Warrant Agreement between the Company and
American Stock Transfer & Trust Company.[ ]
4.5 Form of Underwriter's Option Agreement for Units by and
between the Company and the Underwriter.[ ]
4.6 Form of Warrant Certificate (incorporated by reference into
Exhibit 4.4).[ ]
4.7 Form of Unit Certificate (incorporated by reference into
Exhibit 4.4).[ ]
5 Form of Opinion of Morrison & Foerster LLP.[ ]
10.1 Agreement, dated November 6, 1990, by and between the
Company and Dana-Farber Cancer Institute.*#
10.2 Letter agreement, dated December 5, 1990, by and between the
Company and Michael C. Walker.#
10.3 Letter agreement, dated December 5, 1990, by and between the
Company and Mervyn Israel.#
10.4 Exclusive Supply Agreement, dated June 1, 1991, by and
between the Company and Omnichem S.A.*#
10.5 Termination, Settlement and Investment Agreement, dated July
16, 1996, by and between the Company and Schering AG,
Germany (f/k/a Schering AG).*#
10.6 Agreement, dated September 1996, between the Company and
Allen L. Thunberg.#
10.7 Agreement, dated September 1996, between the Company and
Michael C. Walker.#
10.8 [Intentionally omitted].
10.9 Exclusive License Agreement, dated April 17, 1997, by and
between the Company and Prodesfarma, S.A. (a/k/a Almirall
Prodesfarma, S.A.).*#
10.10 Sublease, dated July 2, 1997, by and between the Company and
the Presbyterian Homes of New Jersey Foundation, Inc.#
10.11 Development Agreement, dated July 15, 1997, by and between
the Company and Medeva California Inc.*[ ]
10.12 Supply Agreement, dated September 11, 1997, by and between
the Company and Genchem Pharma Ltd.*#
10.13 1990 Stock Plan, as amended.#
10.14 Exclusive License, Sale and Distribution Agreement, dated
October 14, 1997, by and between the Company and Nycomed
Pharma AS.*#
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
10.15 Term Sheet, dated December 12, 1997, by and among Berlex
Laboratories, Inc., the Company and Leiras Oy.*#
10.16 Underlease of Suite B Second Floor Premises known as The
Malt House, Malt House Square, Princes Risborough,
Buckinghamshire, dated December 27, 1997, by and between the
Company and Allen-Martin Conservation Limited.#
10.17 ABR Benefits Services, Inc. Regional Prototype Defined
Contribution Plan and Trust, adopted by the Company and
effective as of June 1, 1998.[ ]
10.18 Adoption Agreement for the ABR Benefits Services, Inc.
Regional Prototype Standardized Cash or Deferred Profit
Sharing Plan and Trust (with Pairing Provisions), dated June
1, 1998.[ ]
10.19 Option Agreement, dated July 6, 1998, by and between the
Company, Berlex Laboratories, Inc., and Leiras Oy.[ ]
10.20 Form of Financial Consultant Agreement between the
Underwriter and the Company.[ ]
21 Subsidiary.#
23.1 Consent of KPMG Peat Marwick LLP.[ ]
23.2 Consent of MedProbe, Inc.#
23.3 Consent of Morrison & Foerster LLP (incorporated by
reference into Exhibit 5).[ ]
24 Powers of Attorney (set forth on signature page to the
Registration Statement or included in Exhibit 24 to
Amendment No. 1 to the Registration Statement).#
27.1 Summary Financial Data Schedule.[ ]
</TABLE>
- ---------------
+ To be filed by amendment.
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Omitted portions will be filed separately with the Commission.
# Previously filed.
[ ] Filed herewith.
<PAGE> 1
Exhibit 1
2,000,000 Units, each Unit Consisting of
One (1) Share of Common Stock and
One (1) Redeemable Class A Common Stock Purchase Warrant
of
ANTHRA PHARMACEUTICALS, INC.
Form of
UNDERWRITING AGREEMENT
New York, New York
1998
Janssen/Meyers Associates, L.P.
as Underwriter
17 State Street
New York, New York 10004
Ladies and Gentlemen:
Anthra Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Janssen/Meyers Associates, L.P. ("Underwriter"),
with respect to the sale by the Company and the purchase by the Underwriter, of
2,000,000 units (the "Units"), each Unit comprised of one (1) share ("Share") of
the Company's common stock, par value $.01 per share (the "Common Stock") and
one (1) Redeemable Class A Common Stock Purchase Warrant (the "Warrants")each of
which Warrant entitles the holder to purchase, during an exercise period
commencing on the Separation Date (as hereinafter defined) and terminating five
years after the effective date (the "Effective Date") of the Registration
Statement (as described below), one share of Common Stock at an exercise price
of $6.00 per share, subject to adjustment, and pursuant to a Unit and Warrant
Agreement (the "Warrant Agreement") between the Company and the warrant agent,
set forth in Schedule I. The Warrants shall be redeemable at the option of the
Company commencing fifteen months after the Effective Date, for $.10 per
Warrant, on thirty days prior written notice, provided (i) the last sales price
of the Company's Common Stock is at least $9.00 for 20 consecutive trading days
ending within ten days of the date of the notice of redemption and (ii) there is
a current registration statement covering the resale of the underlying shares of
Common Stock. The aforesaid 2,000,000 Units, Common Stock, Warrants and Shares
of Common Stock underlying the Warrants (the "Firm Securities") and together
with all or any part of the 300,000 additional Units subject to the
overallotment option described in Section 2(b) hereof (the "Overallotment
Securities") are hereinafter collectively referred to as the "Securities."
<PAGE> 2
The Company also proposes to issue and sell to the Underwriters, an option
(the "Underwriter's Purchase Option") pursuant to the Underwriter's Purchase
Option Agreement (the "Underwriter's Purchase Option Agreement") for the
purchase of an aggregate of 10% of the number of Units being sold (the
"Underwriter's Option Units"). The Securities, the Underwriter's Purchase Option
Agreement and Underwriter's Option Units are more fully described in the
Registration Statement (as defined in Subsection 1(a) hereof) and the Prospectus
(as defined in Subsection 1(a) hereof) referred to below. Unless the context
otherwise requires, all references to the "Company" shall include all presently
existing subsidiaries and any entities acquired by the Company on or prior to
the Closing Date (defined in Subsection 2(c) hereof). All representations,
warranties and opinions of counsel required hereunder shall cover any such
subsidiaries and acquired entities.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter as of the date hereof, and as
of the Closing Date and any Overallotment Closing Date (as defined in Subsection
2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-1 (No. 333-47725) including any related
preliminary prospectus (each a "Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended (the "Act"),
which registration statement and any amendment or amendments have been prepared
by the Company in conformity with the requirements of the Act and the rules and
regulations of the Commission under the Act. Following execution of this
Agreement, the Company will promptly file (i) if the Registration Statement has
been declared effective by the Commission, (A) a Term Sheet (as defined in the
Rules and Regulations (as hereinafter defined)) pursuant to Rule 434 under the
Act or (B) a Prospectus under Rules 430A and/or 424(b) under the Act, in either
case in form satisfactory to the Underwriters or (ii) in the event the
registration statement has not been declared effective, a further amendment to
said registration statement in the form heretofore delivered to the Underwriter
and will not, before the registration statement becomes effective, file any
other amendment thereto unless the Underwriter shall have consented thereto
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration
2
<PAGE> 3
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations)(as hereinafter defined), is
hereinafter called the "Registration Statement" and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Rules and Regulations" mean the rules and regulations adopted by the Commission
under either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part thereof and no proceedings
for a stop order have been instituted or are pending or, to the best knowledge
of the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and the Prospectus at the time of filing thereof conformed in all
material respects with the requirements of the Act and the Rules and
Regulations, and neither the Preliminary Prospectus, the Registration Statement
nor the Prospectus at the time of filing thereof contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Overallotment Closing
Date (as hereinafter defined) and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all material
statements which are required to be stated therein in compliance with the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any
3
<PAGE> 4
amendment thereto, at the time the Registration Statement or such amendment is
declared effective under the Act, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, not misleading, and the Prospectus
at the time the Registration Statement becomes effective, at the Closing Date
and at any Overallotment Closing Date, will not contain an untrue statement of a
material fact or omit 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; provided, however, that this representation and warranty
does not apply to statements made or statements omitted in reliance upon and in
conformity with information supplied to the Company in writing by or on behalf
of the Underwriter expressly for use in the Registration Statement or Prospectus
or any amendment thereof or supplement thereto.
(d) The Company has been duly incorporated and is now, and at the
Closing Date and any Overallotment Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of its properties or the
character of its operations require such qualification to do business, except
where the failure to so qualify would not have a material adverse effect on the
Company. The Company has all requisite corporate power and authority, and has
obtained any and all necessary applications, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations except where the failure to comply would not
have a material adverse effect upon the Company; and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision ruling or finding, would materially and adversely affect the condition,
4
<PAGE> 5
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operation of the Company.
The disclosures, if any, in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date
and the Overallotment Closing Date, if any, based upon the assumptions set forth
therein. The Company is not a party to or bound by any instrument, agreement or
other arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Underwriter's Purchase Option and as otherwise described in the Prospectus. The
Units, the Underwriter's Purchase Option and the Underwriter's Option Units and
all other securities issued or issuable by the Company conform or, when issued
and paid for, will conform in all respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; 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 were issued in
violation of the preemptive rights of any holders of any security of the
Company, or similar contractual rights granted by the Company to subscribe for
or purchase securities. The Securities, the Underwriter's Purchase Option and
the Underwriter's Option Units to be issued and sold by the Company hereunder,
and upon payment therefor, are not and will not be subject to any preemptive or
other similar rights of any stockholder to subscribe for or purchase securities,
have been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and will conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issuance and sale of the Securities, the Underwriter's Purchase Option and the
Underwriter's
5
<PAGE> 6
Option Units has been duly and validly taken; and the certificates, if any,
representing the Securities and the Underwriter's Option Units will be in due
and proper form. Upon the issuance and delivery pursuant to the terms hereof of
the Securities to be sold to the Underwriter by the Company hereunder, the
Underwriter will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) KPMG Peat Marwick LLP, whose report is filed with the Commission
as a part of the Registration Statement, is an independent certified public
accountant as required by the Act and the Rules and Regulations.
(h) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, payroll withholding
taxes and taxes payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986 (the "Code"), (ii) has furnished all tax and information returns it
is required to furnish pursuant to the Code, and has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
knowledge of any tax deficiency or claims outstanding, proposed or assessed
against it.
6
<PAGE> 7
(i) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts which it reasonably believes to be
adequate for its business, including, but not limited to, personal injury and
product liability insurance covering all personal and real property owned or
leased by the Company against fire, theft, damage and all risks customarily
issued against.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of the Company which: (i) questions the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement; (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all respects); or (iii) might materially affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to enter
into this Agreement, the Underwriter's Purchase Option Agreement, the Warrant
Agreement, and the Consulting Agreement (as described in Section 4(w) hereof)
and to consummate the transactions provided for in such agreements; and this
Agreement, the Underwriter's Purchase Option Agreement and the Consulting
Agreement have each been duly authorized, executed and delivered by the Company.
Each of this Agreement, the Underwriter's Purchase Option Agreement and the
Consulting Agreement, constitutes a legally valid and binding agreement of the
Company, subject to due authorization, execution and delivery by the
Underwriter, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Warrant agreement, the
Underwriter's Purchase Option Agreement, or the
7
<PAGE> 8
Consulting Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, nor the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any material lien, charge, claim, encumbrance,
pledge, security interest defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of: (i) the Certificate of Incorporation or By-Laws of the
Company; (ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of its properties or assets (tangible or
intangible) is or may be subject; or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriter's purchase and distribution of the
Firm Securities and Overallotment Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Underwriter's Purchase
Option or the Underwriter's Option Units.
(m) All executed agreements or copies of executed agreements
(whether electronically scanned or otherwise) filed as exhibits to the
Registration Statement to which the Company is a party or by which the Company
may be bound or to which any of its assets, properties or businesses may be
subject have been duly and validly authorized, executed and delivered by the
Company, and constitute legally valid and binding agreements of the Company,
8
<PAGE> 9
enforceable against it in accordance with their respective terms, except to the
extent there is no material adverse effect upon the Company. The descriptions
contained in the Registration Statement of contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by the Rules and Regulations and there are no
material contracts or other documents which are required by the Act or the Rules
and Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not:
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money in any material amount; (ii) entered into any
transaction other than in the ordinary course of business; (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock; or (iv) made any changes in capital stock, material changes in debt (long
or short term) or liabilities other than in the ordinary course of business; or
(v) made any material changes in or affecting the general affairs, management,
financial operations, stockholders equity or results of operations of the
Company.
(o) No default exists in the due performance and observance of any
material term, covenant or condition of any license, contract, indenture,
mortgage, installment sales agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which any of
the Company may be bound or to which any of its property or assets (tangible or
intangible) of the Company is subject or affected except where such default does
not, and will not, have a material adverse effect upon the Company.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and
9
<PAGE> 10
employment practices, terms and conditions of employment and wages
and hours.
(q) Since January 1, 1991, the Company has not incurred any
liability arising under or as a result of the application of the provisions of
the Act.
(r) Except as disclosed in the Prospectus, the Company does not
presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed 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"). Except as disclosed in the Prospectus, the Company does not
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA.
(s) The Company is not in violation in any material respect of any
domestic or foreign laws, ordinances or governmental rules or regulations to
which it is subject.
(t) Except for registration rights for securities which have been
waived by the holders thereof, no holders of any securities of the Company or of
any options, warrants or other convertible or exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the Act.
(u) Neither the Company, nor, to the Company's best knowledge after
due inquiry, any of its employees, directors, stockholders or affiliates (within
the meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(v) Except as described in the Prospectus, none of the patents,
patent applications, trademarks, service marks, trade
10
<PAGE> 11
names and copyrights, or licenses and rights to the foregoing presently owned or
held by the Company are in dispute or are in any conflict with the right of any
other person or entity within the Company's current area of operations nor has
the Company received notice of any of the foregoing. The Company: (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation 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 payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(w) The Company owns and has the unrestricted right to use all
material trade secrets, trade-marks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "Intellectual
Property") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(x) The Company has taken reasonable security measures to protect
the secrecy, confidentiality and value of all the Intellectual Property material
to its operations.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all
11
<PAGE> 12
liens, charges, claims, encumbrances, pledges, security interests, defects, or
other restrictions or equities of any kind whatsoever, other than liens for
taxes or assessments not yet due and payable.
(aa) On or before the effective date of the Registration Statement,
the Company shall cause to be duly executed legally binding and enforceable
agreements pursuant to which (i) each of the Company's stockholders, other than
____________, has agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber any of their shares of Common Stock or other securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period commencing on the
Effective Date and ending on the last day of the 13th month after the closing
date of the Offering without the prior written consent of the Underwriter, and
(ii) The holders of options to purchase shares of the Company's Common Stock
(the "Options") have agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber any of their shares of Common Stock underlying such Options
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period commencing on the
Effective Date and ending on the last day of the 13th month after the closing
date of the Offering without the prior written consent of the Underwriter. The
Company will cause the Transfer Agent, as defined below, to mark an appropriate
legend on the face of stock certificates representing all of such shares of
Common Stock.
(bb) The Company has not incurred any liability and there are no
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company or any of its officers, directors, employees or affiliates that may
adversely affect the Underwriter's compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(cc) The Firm Securities have been approved for quotation on either
the American Stock Exchange or the Nasdaq Smallcap Market of the Nasdaq Stock
Market, Inc. subject to official notice of issuance.
(dd) Neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or
12
<PAGE> 13
official or employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) which: (a)
might subject the Company, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign); (b) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company; and (c) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(ee) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which 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, except with respect to the beneficial ownership of not more
than 1% of the outstanding shares of capital stock of any publicly-held entity;
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 agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director, or principal stockholder of the Company, or any affiliate
or associate of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriter's counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(gg) The Company has entered into an employment agreement with
Michael C. Walker as described in the Prospectus. The Company is using its best
efforts to obtain key person life insurance with a insurer rated at least AA or
better in the most recent addition
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of "Best's Life Reports" in the amount of $2,000,000 on the life of one or more
of the Company's principal executive officers to be designated by the
Underwriter. Such insurance shall be maintained in full force and effect for a
period of three years. The Company shall be the sole beneficiary of such policy.
(hh) No securities of the Company have been sold by the Company in
the last three fiscal years, except as disclosed in Part II of the Registration
Statement.
(ii) The minute books of the Company have been made available to
Underwriter's Counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Stockholders of the Company since June 25, 1985.
(jj) Except as disclosed in writing to the Underwriter, no officer,
or director or stockholder of the Company has any affiliation or association
with any member of the NASD.
2. Purchase, Sale and Delivery of the Securities and
Agreement to Issue Underwriter's Purchase Option.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to Underwriter and Underwriter agrees to
purchase from the Company at the price per Unit set forth below.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase up to an additional 300,000 Units. The option granted
hereby will expire 45 days after the date of this Agreement, and may be
exercised in whole or in part from time to time only for the purpose of covering
overallotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Underwriter to the
Company setting forth the number of Overallotment Securities as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for such Overallotment Securities. Any such time and date of delivery
shall be determined by the Underwriter, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as defined in paragraph (c) below, unless otherwise agreed to
between the Underwriter and the Company. In
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<PAGE> 15
the event such option is exercised, the Underwriter shall purchase such number
of Overallotment Securities then being purchased which shall have been allocated
to the Underwriter, and which such shall have agreed to purchase, subject in
each case to such adjustments as the Underwriter in its discretion shall make to
eliminate any sales or purchases of fractional Securities. Nothing herein
contained shall obligate the Underwriter to make any overallotments. No
Overallotment Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Underwriter,
Janssen/Meyers Associates, L.P., 17 State Street, 15th Floor, New York, New York
10004 or at such other place as shall be designated by the Underwriter. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
___________, 1998 or at such other time and date as shall be designated by the
Underwriter but not less than three (3) nor more than five (5) business days
after the Effective Date of the Registration Statement (such time and date of
payment and delivery being hereafter called "Closing Date"). In addition, in the
event that any or all of the Overallotment Securities are purchased by the
Underwriter, payment of the purchase price for, and delivery of certificates for
such Overallotment Securities shall be made at the above-mentioned office or at
such other place and at such time (such time and date of payment and delivery
being hereinafter called "Overallotment Closing Date") as shall be agreed upon
by the Underwriter and the Company on each Overallotment Closing Date as
specified in the notice from the Underwriter to the Company. Delivery of the
certificates for the Firm Securities and the Overallotment Securities, if any,
shall be made to the Underwriter against payment by the Underwriter of the
purchase price for the Firm Securities and the Overallotment Securities, if any,
to the order of the Company as the case may be by certified check in New York
Clearing House funds, certificates for the Firm Securities and the Overallotment
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to Closing Date or the relevant Overallotment Closing Date, as the case
may be. The certificates for the Firm Securities and the Overallotment
Securities, if any, shall be made available to the Underwriters at the
above-mentioned office or such other place as the Underwriter may designate for
inspection, checking and
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<PAGE> 16
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Overallotment Closing Date, as the case may be.
The purchase price of the Securities to be paid by the Underwriter
to the Company for the Securities purchased under Clauses (a) and (b) above will
be $4.55 per Unit (which price is net of the Underwriter's discount and
commissions). The Company shall not be obligated to sell any Securities
hereunder unless all Firm Securities to be sold by the Company are purchased
hereunder. The Company agrees to issue and sell the Securities to the
Underwriter in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriters, the Underwriter's Purchase Option at a purchase price of $200.00
which Underwriter's Purchase Option shall entitle the holders thereof to
purchase an aggregate of 200,000 Units. The Underwriter's Purchase Option shall
not be exercisable for one year after the Effective Date and will expire five
years after such date at an initial exercise price equal to one hundred forty
percent (140%) of the initial public offering price of the Units. The
Underwriter's Purchase Option Agreement and form of Purchase Option Certificate
shall be substantially in the form filed as an Exhibit to the Registration
Statement. The Warrant to be received by the Underwriter upon exercise of the
Underwriter's Purchase Option shall be substantially the same as delivered to
the public in the Offering. Payment for the Underwriter's Purchase Option shall
be made on the Closing Date. The Company has reserved and shall continue to
reserve a sufficient number of Units, Shares and Warrants for issuance upon
exercise of the Underwriter's Purchase Option.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Underwriter deems advisable, but in no
event more than three (3) business days after such Effective Date, the
Underwriter shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus and otherwise in compliance with the Rules and
Regulations. The Underwriter may allow such concessions and discounts upon sales
to other dealers as set forth in the Prospectus. The Underwriter may from time
to time increase or decrease the public offering price after distribution of the
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<PAGE> 17
Securities has been completed to such extent as the Underwriter, in its sole
discretion, deems advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act: (i)
before termination of the offering of the Securities by the Underwriter which
the Underwriter shall not previously have been advised and furnished with a
copy; or (ii) to which the Underwriter shall have objected; or (iii) which is
not in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm by notice in writing: (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
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<PAGE> 18
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriter pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriter or Goldstein
& DiGioia, LLP ("Underwriter's Counsel"), shall reasonably object.
(e) The Company shall cooperate in good faith with the Underwriter,
and Underwriter's Counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriter may
reasonably designate, and shall cooperate with the Underwriter and Underwriter's
Counsel in the making of such applications, and filing such documents and shall
furnish such information as may be required for such purpose; provided, however,
the Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriter agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
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<PAGE> 19
(f) During the time when the Prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriter's Counsel, and the Company will furnish
to the Underwriter a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period commencing on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof and
provided that the Company is required to file reports with the Commission under
Section 12 of the Exchange Act, the Company will furnish to its stockholders, as
soon as practicable, annual reports (including financial statements audited by
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<PAGE> 20
independent public accountants), and will deliver to the Underwriter:
(i) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the Nasdaq
SmallCap Market or any securities exchange;
(iii) every press release and every material news item or
article of interest to the financial community in respect of the Company and any
future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature concerning
the Company and any future subsidiaries or their respective businesses which the
Underwriter may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time.
During such four-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent and Warrant Agent, which may be the same entity, and, if
necessary under the same jurisdiction of incorporation as the Company, as well
as a Registrar (which may be the same entity as the Transfer and Warrant Agent)
for its Common Stock.
(j) The Company will furnish to the Underwriter or pursuant to the
Underwriter's direction, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (one of which copies will
be manually executed and will include all financial statements and exhibits),
the Prospectus, and all amendments and supplements thereto, including any
prospectus prepared after the effective date
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<PAGE> 21
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may reasonably request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the provisions, set forth under the
caption "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used directly or indirectly to acquire any securities previously issued by
the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each
Overallotment Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited consolidated interim
financial statements of the Company (which in no event shall be as of a date
more than forty-five (45) days prior to the date of the Registration Statement)
which have been read by the Company's independent public accountants, as stated
in their letters to be furnished pursuant to Section 6(k) hereof.
(o) For a period of three (3) years from the Closing Date, the
Company shall furnish to the Underwriter at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Securities upon the
Underwriter's request; (ii) a list of holders of Securities upon the
Underwriter's request; (iii) a list of, if any, the securities positions of
participants in the Depository Trust Company upon the Underwriter's request.
(p) Until a date which is two (2) years from the Closing Date, the
Underwriter shall be entitled to appoint an individual
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<PAGE> 22
who shall be permitted to attend all meetings of the Board and to receive all
notices and other correspondence and communications sent by the Company to
members of the Board, and copies of all minutes thereof. The Company shall
reimburse the Underwriter's designee for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or observer)
and the Underwriter harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or an observer and
the Company shall maintain a liability insurance policy in an amount of not less
than $3,000,000 affording coverage for the action of its officer and directors,
to include such designee and the Underwriter as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years from the
date hereof, or (ii) the sale to the public of the Underwriter's Option Units,
the Company will not take any action or actions that may prevent or disqualify
the Company's use of Form S-1 or, if applicable, Form S-3 (or other appropriate
form) for the registration under the Act of the Underwriter's Option Units.
(r) For a period of five (5) years from the date hereof, use its
best efforts at its cost and expense to maintain the listing of the Securities
on the Nasdaq SmallCap or the American Stock Exchange.
(s) Following the Effective Date of the Registration Statement and
for a period of two (2) years thereafter, the Company shall, at its sole cost
and expense, prepare and file such blue sky trading applications with such
jurisdictions as the Underwriter may reasonably request after consultation with
the Company, and on the Underwriter's request, furnish the Underwriter with an
opinion of counsel with respect to the secondary sale of the Securities under
the blue sky laws of the various states prepared by securities counsel to the
Company.
(t) The Company shall not amend or alter any term of any written
employment agreement between the Company and any executive officer, or alter or
amend the amount of compensation payable to such employee during the term of
such written employment agreement, in a manner more favorable to such employee,
without the express written consent of the Underwriter.
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(u) Until the completion of the distribution of the Securities and
the termination of the Overallotment Option period, the Company shall not
without the prior written consent of the Underwriter, which consent shall not be
unreasonably withheld, 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.
(v) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
(w) On the Closing Date, the Company and the Underwriter shall enter
into a financial consulting agreement (the "Financial Consulting Agreement"), in
the form filed as an Exhibit to the Registration Statement, pursuant to which
the Underwriter will provide financial consulting services to the Company on the
following terms: (i) the Company shall agree to employ the Underwriter as its
Investment Banker and Financial Consultant at a monthly fee of $2,777.00 per
month for a period of three years (exclusive of any pre-approved accountable out
of-pocket expenses payable in advance on the closing date of the Offering); (ii)
for a period of five years, the Underwriter will be paid a fee equal to five
percent of the amount up to $5 million and two and one half percent of the
excess, if any, over $5 million of the consideration involved in any transaction
(including mergers, acquisitions, joint ventures and other business
transactions) consummated by the Company with a party introduced to the Company
by the Underwriter, which introductions shall be pre-approved by the Company and
with which party the Underwriter had substantial contact on behalf of the
Company.
(x) For a period of 13 months commencing on the Closing Date, except
with the written consent of the Underwriter, will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Underwriter's Purchase Option, (iii) the
exercise of warrants and options of the Company heretofore issued and described
in the Prospectus, and (iv) the grant of options and the issuance of shares
issued upon exercise of options issued or to be issued under the Company's stock
option plan as described in the
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Prospectus ("Stock Option Plan"). Except as discussed in the Prospectus, prior
to the Closing Date, the Company will not issue any options or warrants without
the prior written consent of the Underwriter. The Company shall not, for a
period of 13 months from the Closing Date offer or sell any securities pursuant
to Regulation S or similar regulation.
(y) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the 13 months following the Closing Date without
the Underwriter's prior written consent.
(z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any material adverse
change in the condition (financial or other), business, operations, income, net
worth or properties, including any material loss or damage to the properties of
the Company (whether or not such loss is insured against), which could
materially adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Common Stock or its other securities or redeem or repurchase any of its Common
Stock or other securities.
(aa) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, the Company, for a period of 13 months following the
Closing Date, shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Closing Date without obtaining the Underwriter's prior written consent,
which consent shall not be unreasonably withheld. The Underwriter shall either
approve or disapprove such contemplated redemption of securities or dividend
payment or distribution within ten (10) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a
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failure of the Underwriter to respond within the ten (10) business day period
shall be deemed approval of the transaction.
(cc) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date and the
Overallotment Closing Date (to the extent not paid at the Closing Date) all its
expenses and fees (other than fees of Underwriter's Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this 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, mailing, printing and filing of
the Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements, Agreement Between Underwriter, 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 Underwriter in quantities as hereinabove stated; (iii) the printing,
engraving, issuance and delivery of the Securities and Underwriter's Option
Units including any transfer or other taxes payable thereon; (iv) disbursements
and fees of Underwriter's Counsel in connection with the qualification of the
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 "Legal Investments
Survey," if any, which Underwriter's Counsel fees (exclusive of filing fees and
disbursements) shall equal $35,000 and of which $12,000 has previously been
paid; (v) advertising costs and expenses, including
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but not limited to costs and expenses in connection with one information meeting
held in New York, New York, one tombstone advertisement, at least 4 bound
volumes of the Offering documents for the Underwriter and its counsel and
prospectus memorabilia; (vi) fees and expenses of the transfer agent; (vii) the
fees payable to the NASD; and (viii) the fees and expenses incurred in
connection with the listing of the Securities on the Nasdaq SmallCap Market or
the American Stock Exchange. All fees and expenses payable to the Underwriter
hereunder shall be payable at the Closing Date or Overallotment Closing Date, as
applicable; provided, however, the company shall pay such fees and costs in
advance of the Closing Date if requested by the Underwriter. The Underwriter
shall be responsible for all of its own costs of counsel.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6, Section 10(a) or Section 11, the Company shall
reimburse and indemnify the Underwriter for up to $50,000 out-of-pocket actual
expenses reasonably incurred in connection with the transactions contemplated
hereby including the fees and disbursements of counsel for the Underwriter of
which the Underwriter acknowledges $25,000 has been paid prior to the date
hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Underwriter a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Firm Securities,
$25,000 of which has been paid to date to the Underwriter. The Company will pay
the remainder of the non-accountable expense allowance on the Closing Date by
certified or bank cashier's check or, at the election of the Underwriter, by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elects to exercise the over-allotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on the
Overallotment Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Overallotment Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the
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Company herein as of the Closing Date and each Overallotment Closing Date, if
any, as if they had been made on and as of the Closing Date or each
Overallotment Closing Date, as the case may be; the accuracy on and as of the
Closing Date or Overallotment Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Overallotment
Closing Date, if any, of each of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have be declared effective by
the Commission not later than 5:30 P.M., New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Underwriter, and, at Closing Date and each Overallotment Closing Date, if any,
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 to the knowledge of the Company by the
Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Underwriter's Counsel. 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 Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, and the opinion of its counsel is
material or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Underwriter's
reasonable opinion, or the opinion of its counsel is material, or omits to state
a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) The Company's registration statement pursuant to the Exchange
Act on Form 8-A has been declared effective by the Commission.
(d) At the Closing Date and the Overallotment Closing Date, the
Underwriter shall have received the favorable opinion of Morrison & Foerster,
LLP, counsel to the Company, dated the Closing Date, or Overallotment Closing
Date, as the case may be, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company: (A) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which by reason of maintaining an
office in such jurisdiction or by owning or leasing real property in such
jurisdiction it is required to be so licensed or qualified except where failure
to be so qualified or licensed would have no material adverse effect upon the
Company; and (C) to the best of counsel's knowledge, the Company has not
received any notice of proceedings relating to the revocation or modification of
any such license or qualification which revocation or modification would have a
material adverse effect upon the Company.
(ii) The Registration Statement, each Preliminary Prospectus
that has been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, schedules and other
financial and statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form S-1 have been satisfied by the Company.
(iii) To the best of such counsel's knowledge, except as
described in the Prospectus, the Company does not own an interest of a character
required to be disclosed in the Registration Statement in any corporation,
partnership, joint venture, trust or other business entity;
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(iv) To the best of such counsel's knowledge, the Company has a
duly authorized, issued and outstanding capitalization as set forth in the
Prospectus as of the date indicated therein, under the caption "Capitalization".
The Units, Underwriter's Purchase Option and the Underwriter's Option Units
conform or upon issuance will conform in all material respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and all shares of capital stock are fully paid and
non-assessable; the holders thereof are not, except by reason of their own
conduct or acts, subject to personal liability by reason of being such holders,
and none of such securities were issued in violation of the preemptive rights of
any holder of any security of the Company. The Securities to be sold by the
Company hereunder, the Underwriter's Purchase Option to be sold by the Company
under the Underwriter's Purchase Option Agreement and Underwriter's Option Units
have been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and non-assessable and
conform or upon issuance will conform to the description thereof contained in
the Prospectus; are not, subject to any preemptive or other similar rights of
any stockholder of the Company; that, to such counsel's knowledge, the holders
of the Securities and Underwriter's Option Units shall not be personally liable
for the payment of the Company's debts solely by reason of being such holders
except as they may be liable by reason of their own conduct or acts; and that
the certificates representing the Units, Underwriter's Purchase Option and
Underwriter's Option Units are in due and proper legal form. Upon delivery of
the Units to the Underwriter against payment therefor as provided for in this
Agreement, the Underwriter (assuming they are bona fide purchasers within the
meaning of the Uniform Commercial Code) will acquire good title to the Units,
free and clear of all liens, encumbrances, equities, security interests and
claims.
(v) Each of the Registration Statements and the Exchange Act
Registration Statement has been declared effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued and to the best of such counsel's knowledge, no proceedings for that
purpose have been instituted or are pending or threatened or contemplated under
the Act;
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(vi) To the best of such counsel's knowledge, (A) there are no
material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form S-1
and the Rules and Regulations;
(vii) This Agreement, the Underwriter's Purchase Option
Agreement and the Financial Consulting Agreement have each been duly and validly
authorized, executed and delivered by the Company, and assuming that each is a
valid and binding agreement of the Underwriter, as the case may be, constitutes
a legally valid and binding agreement of the Company, enforceable as against the
Company in accordance with their respective terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law or pursuant to public policy).
(viii) Neither the execution or delivery by the Company of
this Agreement, the Underwriter's Purchase Option Agreement or the Financial
Consulting Agreement, nor its performance hereunder or thereunder, nor its
consummation of the transactions contemplated herein or therein, nor the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, nor the issuance of the Securities
pursuant to this Agreement, conflicts with or will conflict with or results or
will result in any material breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under, or
result in the creation imposition of any material lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or intangible) of the
Company except to the extent such event will not have a material adverse effect
upon the Company pursuant to the terms of, (A) the Certificate of Incorporation
or By-Laws of the Company, (B) to the best knowledge of such counsel,
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any indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
that is material to the Company to which the Company is a party or by which it
is bound or to which its properties or assets (tangible or intangible) are
subject, or any indebtedness, or (C) to the best knowledge of such counsel, and
except to the extent it would not have a material adverse effect on the Company,
any statute, judgment, decree, order, rule or regulation applicable to the
Company or any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body, having jurisdiction over the Company or any
of its respective activities or properties.
(ix) No consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body (other
than such as may be required under state securities laws, as to which no opinion
need be rendered) is required in connection with the issuance by the Company of
the Securities pursuant to the Prospectus and the Registration Statement, the
performance of this Agreement, the Underwriter's Option Agreement for Units and
the Financial Consulting Agreement by the Company, and the taking of any action
by the Company contemplated hereby or thereby, which has not been obtained;
(x) Except as described in the Prospectus, to the best
knowledge of such counsel, the Company is not in breach of, or in default under,
any material term or provision of any indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets (tangible or intangible) of the
Company is subject or affected; and the Company is not in violation of any
material term or provision of its Certificate of Incorporation or By-Laws or in
violation of any material franchise, license, permit, judgment, decree, order,
statute, rule or regulation material to the Company business;
(xi) The statements in the Prospectus under the captions "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR FUTURE
SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law,
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descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xii) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement;
(xiii) the Securities are eligible for listing on the Nasdaq
Small Cap Market or the American Stock Exchange.
In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company and
representatives of the Underwriter at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus and made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective or the Prospectus as of the date of such
opinion contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no opinion with respect to
the financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished in
writing to the Company on behalf of any Underwriter expressly for use in the
Registration Statement or the Prospectus).
In rendering such opinion, such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of Delaware and New York and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion,
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if at all, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriter's Counsel) of other counsel reasonably acceptable to
Underwriter's Counsel, familiar with the applicable laws of such other
jurisdictions, and (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided, that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion, the
Underwriter and they are justified in relying thereon.
(d) At each Overallotment Closing Date, if any, the Underwriter
shall have received the favorable opinion of counsel to the Company, each dated
the Overallotment Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel confirming as of the
Overallotment Closing Date the statements made by such firm, in their opinion,
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Overallotment
Closing Date, Underwriter's Counsel shall have been furnished such documents,
certificates and other legal opinions (including, without limitation, legal
opinions related to patent, trademark or Food and Drug matters) as they may
reasonably require and request for the purpose of enabling them to review or
pass upon the matters referred to in subsection (c) of this Section 6, or in
order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(f) Prior to the Closing Date and each Overallotment Closing Date,
if any: (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects or the business activities of the Company, whether or not in the
ordinary course of business, from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus; (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 which is materially
adverse to the Company; (iii) the Company shall not be in material default
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<PAGE> 34
under any provision of any instrument relating to any outstanding indebtedness
for money borrowed, except as described in the Prospectus; (iv) 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; (v) no action, suit
or proceeding, at law or in equity, shall have been pending or to its knowledge
threatened against the Company, or affecting any of its properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; and (vi) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(g) At the Closing Date and each Overallotment Closing Date, if any,
the Underwriter 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 Overallotment Closing Date, as
the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are, in all material respects, true and correct, as if made on and as
of the Closing Date or the Overallotment Closing Date, as the case may be, and
the Company has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or satisfied
at or prior to such Closing Date or Overallotment Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the
Registration Statement 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, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor 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
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light of the circumstances under which they were made, not misleading and
neither the Preliminary Prospectus nor 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 to
the extent any such material fact may be corrected in the Final Prospectus; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and except
as otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Overallotment Closing Date, as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any material transactions not in the ordinary course of
business; (D) there has not been any change in the capital stock or any increase
in 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) of the
Company; (E) the Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no litigation which is
pending or threatened against the Company which is required to be set forth in
an amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates
shall have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Units.
References to the Registration Statement and the Prospectus in this
subsection (h) are to such documents as amended and supplemented at the date of
such certificate.
(h) By the Closing Date, the Underwriter shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
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(i) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter, from KPMG Peat Marwick LLP:
(i) confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the combined
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 Underwriter may rely upon the opinion of KPMG Peat
Marwick LLP with respect to the financial statements and supporting schedules
included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim combined financial
statements of the Company (with an indication of the date of the latest
available unaudited interim combined financial statements), a reading of the
latest available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention that would lead them to believe that (A) the unaudited
combined 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 combined financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) 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 financial statements included in the
Registration Statement, other than as set forth in or contemplated by the
Registration
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Statement, or, if there was any change or decrease, setting forth the amount of
such change or decrease, and (C) during the period from ___________, 1998 to a
specified date not more than five (5) days prior to the Effective Date of the
Registration Statement, there was any 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 ___________, 1998 other than as
set forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the Effective Date of the Registration Statement, the amount of
liabilities of the Company (including a breakdown of commercial paper and notes
payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of Securities, 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; and
(vi) stating that they have not during the immediately
preceding five (5) year period brought to the attention of the Company's
management any "weakness", as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an Audit,"
in the Company's internal controls;
(vii) 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 material respects with the applicable
accounting requirements of Rule ll-02 of Regulation S-X or that the pro forma
adjustments have not been properly
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applied to the historical amounts in the compilation of that information; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(j) At the Closing Date and each Overallotment Closing Date, the
Underwriter shall have received from KPMG Peat Marwick LLP, a letter, dated as
of the Closing Date, or Overallotment Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (i) of this Section, except that the specified date referred to
shall be a date not more than five days prior to Closing Date 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
(iii) of subsection (i) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriter 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 (iii).
(k) On each of Closing Date and Overallotment Closing Date, if any,
there shall have been duly tendered to the Underwriter for their accounts the
appropriate number of Securities against payment therefore.
(l) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e) of Section
4 hereof shall have been issued on either the Closing Date or the Overallotment
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Overallotment Closing
Date, as the case may be, is not so fulfilled, the Underwriter may terminate
this Agreement or, if the Underwriter so elects, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
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(a) The Company agrees to indemnify and hold harmless the
Underwriter, including specifically each person who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all losses, claims, damages, expenses
or liabilities, joint or several (and actions in respect thereof), whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which such Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus (except that the indemnification contained in this
paragraph with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter or to the benefit of any person controlling the
Underwriter on account of any loss, claim, damage, liability or expense arising
from the sale of the Firm Securities by the Underwriter to any person if a copy
of the Prospectus, as amended or supplemented, shall not have been delivered or
sent to such person within the time required by the Act, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus, as amended and supplemented, and such correction would have
eliminated the loss, claim, damage, liability or expense), the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included Securities of the Company issued
or issuable upon exercise of the Underwriter's Unit Purchase Option; or (iii) in
any application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless in any case above such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any
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Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of the Act to the same extent as the foregoing indemnity from
the Company to the Underwriter but only with respect to statements or omissions,
if any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto in any post-effective
amendment, new registration statement or prospectus, or in any application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to the Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any post-effective amendment,
new registration statement or prospectus, or in any such application, directly
related to the transactions effected by the Underwriter in connection with this
Offering; provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto, in any post-effective
amendment, new registration statement or prospectus or in any such application,
provided, further, that the liability of each Underwriter to the Company shall
be limited to the product of the Underwriter's discount or commission for the
Units multiplied by the number of Units sold by the Underwriter hereunder. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities set forth under the heading "Underwriting" and the
stabilization legend and the last paragraph of the cover page in the Prospectus
have been furnished by the Underwriter expressly for use therein and any
information furnished by or on behalf of the Underwriter filed in any
jurisdiction in order to qualify the Securities under State Securities laws or
filed with the Commission, the NASD or any securities exchange constitute the
only information furnished in writing by or on behalf of the Underwriter
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for inclusion in the Prospectus and the Underwriter hereby confirm that such
statements and information are true and correct and shall be on each Closing
Date and Overallotment Closing Date.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, the indemnifying party may assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnifying 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), in any of which events such fees and expenses of
one additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations
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<PAGE> 42
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent; provided however, that such consent was
not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, 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 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
the contributing party and the Underwriter are the indemnified party the
relative benefits received by the Company on the one hand, and the Underwriter,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses) bear to
the total underwriting discounts and commissions received by the Underwriter
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriter 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
42
<PAGE> 43
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (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
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which 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 7, each person, if any, who controls the Company within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to this subparagraph (d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which 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 Overallotment Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the indemnity
agreements contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Underwriter, the Company, or any
43
<PAGE> 44
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the Underwriter.
9. Effective Date.
This Agreement shall become effective at _____ a.m., New York
City time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Underwriter, in their discretion, shall release the Securities for the sale to
the public, provided, however that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such Securities for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) The Underwriter shall have the right to terminate this
Agreement: (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriter's opinion will in the
immediate future materially disrupt general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a war
or major hostilities; or (iv) if a banking moratorium has been declared by a New
York State or federal authority; or (v) if a moratorium in foreign exchange
trading has been declared; or if the Company shall have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; or (vii) if there shall have been such material adverse change in the
conditions or prospects of the Company, involving a change not contemplated by
the Registration Statement, or (viii) if there shall have been such material
adverse general market conditions as in the Underwriter's reasonable judgment
would make it inadvisable to proceed with the offering, sale or delivery of the
Securities.
44
<PAGE> 45
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 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. Default by the Company. If the Company shall fail at the Closing
Date or any Overallotment Closing Date, as applicable, to sell and deliver the
number of Securities which 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 Overallotment Closing Date, the
Underwriter may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's obligations to purchase Securities from
the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5 and Section 7 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
12. 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 or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Janssen/Meyers Associates, L.P., 17 State Street, 19th Floor, New
York, New York 1004, Attention: Kenneth Levy, with a copy to Goldstein &
DiGioia, LLP, 369 Lexington Avenue, New York, New York 10017, Attention: Brian
C. Daughney, Esq. Notices to the Company shall be directed to the Company at 103
Carnegie Center, Suite 102, Princeton, New Jersey, 08540, Attention: Michael C.
Walker, with a copy to Morrison & Foerster LLP, 1290 Avenue of the Americas, New
York, New York 10104-0012, Attention: Joseph W. Bartlett, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in 26 Section 7 hereof, and their respective
successors, legal Underwriter and assigns, and their respective heirs and legal
Underwriter 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
45
<PAGE> 46
contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
14. Governing Law/Construction/Jurisdiction.
(a) This Agreement shall be construed in accordance with the
laws of the State of New York, without giving effect to conflict of laws.
(b) The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (b) waives
any objection which the Company may have now or hereafter to the venue of any
such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York and the
United States District Court for the Southern District of New York in any such
suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court for
the Southern District of New York, and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. Waiver. The waiver by either party of the breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. Except as otherwise provided within this Agreement,
neither party hereto may transfer or assign this Agreement without prior written
consent of the other party.
18. Titles and Captions. All article, section and paragraph titles
or captions contained in this Agreement are for
46
<PAGE> 47
convenience only and shall not be deemed part of the context nor affect the
interpretation of this Agreement.
19. Pronouns and Plurals. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the Person or Persons may require.
20. Entire Agreement. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
ANTHRA PHARMACEUTICALS, INC.
By:___________________________
Name: Michael C. Walker
Title: President
Confirmed and accepted as of the date first above written.
JANSSEN/MEYERS ASSOCIATES, L.P.
By MEYERS/JANSSEN SECURITIES CORP.
General Partner
By:_____________________________
Name: Bruce Meyers
Title: Vice-President
47
<PAGE> 48
SCHEDULE I
Warrant Agent
American Stock Transfer and Trust Company
48
<PAGE> 1
Exhibit 4.4
Form of
UNIT and WARRANT AGREEMENT
Between
ANTHRA PHARMACEUTICALS, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Unit Agent, Warrant Agent and Transfer Agent
-------------------------------
Dated as of September ___, 1998
-------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINED TERMS........................................................................................2
ARTICLE II DISTRIBUTION OF UNIT, WARRANT AND COMMON STOCK CERTIFICATES.........................................3
2.1. Appointment of Unit Agent, Warrant Agent and Transfer Agent...........................................3
2.2. Issuance and Distribution of Unit Certificates, Warrant Certificates and Common Stock Certificates....4
2.3. Form of Unit Certificates.............................................................................4
2.4. Execution of Unit Certificates........................................................................5
2.5. Form of Warrant Certificates..........................................................................5
2.6. Execution of Warrant Certificates.....................................................................5
2.7. Exchange of Unit Certificates.........................................................................5
2.8. Transfer of Units and Warrants........................................................................6
ARTICLE III WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS....................................................6
3.1. Applicable Exercise Price.............................................................................6
3.2. Exercisability of Warrants............................................................................6
3.3. Procedure for Exercise of Warrants....................................................................6
3.4. Issuance of Warrant Shares............................................................................7
3.5. Certificates for Unexercised Warrants.................................................................7
3.6. Reservation of Shares.................................................................................7
3.7. Disposition of Proceeds...............................................................................8
ARTICLE IV REDEMPTION OF WARRANTS..............................................................................8
4.1. Redemption Price and Trigger Price....................................................................8
4.2. Payment of Redemption Price...........................................................................8
ARTICLE V ADJUSTMENTS AND NOTICE PROVISIONS....................................................................8
5.1. Adjustment of Exercise Price and Number of Shares of Common Stock or Warrants.........................8
5.2. No Adjustment for Dividends..........................................................................12
5.3. Other Adjustments....................................................................................12
5.4. Notice of Adjustment.................................................................................12
5.5. Notices of Corporate Action..........................................................................12
5.6. Notice of Redemption.................................................................................13
5.7. Verification of Computations.........................................................................13
5.8. Effect of Failure to Give Notice.....................................................................13
5.9. Warrant Certificate Amendments.......................................................................14
ARTICLE VI OTHER PROVISIONS RELATING TO RIGHTS OF REGISTERED HOLDERS OF UNIT CERTIFICATES AND WARRANT
CERTIFICATES............................................................................14
6.1. Rights of Unit Holders...............................................................................14
6.2. Rights of Warrant Holders............................................................................14
6.3. Lost, Stolen, Mutilated or Destroyed Unit Certificates or Warrant Certificates.......................14
ARTICLE VII TRANSFER AND REGISTRATION OF UNITS AND WARRANTS; LISTING OF WARRANT SHARES........................15
7.1. Sale of Units, Warrants and Warrant Shares...........................................................15
7.2. Registration of Units, Warrants and Warrant Shares...................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.3. Listing of Warrant Shares on Securities Exchanges....................................................16
7.4. Availability of Information..........................................................................16
ARTICLE VIII SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF UNIT CERTIFICATES AND WARRANT
CERTIFICATES............................................................................16
8.1. Split Up, Combination, Exchange and Transfer of Unit Certificates and Warrant Certificates...........16
8.2. Cancellation of Unit Certificates and Warrant Certificates...........................................17
8.3. Agreement of Unit Certificate and Warrant Certificate Holders........................................18
ARTICLE IX PROVISIONS CONCERNING THE UNIT AGENT AND THE WARRANT AGENT AND OTHER MATTERS.......................18
9.1. Payment of Taxes and Charges.........................................................................18
9.2. Resignation or Removal of Unit Agent or Warrant Agent................................................18
9.3. Notice of Appointment................................................................................19
9.4. Merger of Unit Agent or Warrant Agent................................................................19
9.5. Company Responsibilities.............................................................................19
9.6. Certification for the Benefit of Unit Agent or Warrant Agent.........................................20
9.7. Books and Records....................................................................................20
9.8. Liability of Unit Agent and Warrant Agent............................................................20
9.9. Use of Attorneys, Agents and Employees...............................................................21
9.10. Indemnification......................................................................................21
9.11. Acceptance of Agency.................................................................................21
9.12. Changes to Agreement.................................................................................21
9.13. Assignment. 22
9.14. Successor to Company.................................................................................22
9.15. Notices. 22
9.16. Defects in Notice....................................................................................23
9.17. Governing Law........................................................................................23
9.18. Standing. 23
9.19. Headings. 23
9.20. Counterparts.........................................................................................23
9.21. Conflict of Interest.................................................................................23
9.22. Availability of the Agreement........................................................................24
EXHIBITS:
EXHIBIT A - Form of Unit Certificate
EXHIBIT B - Form of Warrant Certificate
</TABLE>
ii
<PAGE> 4
UNIT AND WARRANT AGREEMENT
THIS UNIT AND WARRANT AGREEMENT, dated as of September __, 1998, is
made and entered into by and between ANTHRA PHARMACEUTICALS, INC., a Delaware
corporation ("Anthra" or the "Company"), and AMERICAN STOCK TRANSFER & TRUST
COMPANY, as unit agent (in such capacity, the "Unit Agent"), warrant agent (in
such capacity, the "Warrant Agent") and transfer agent (in such capacity, the
"Transfer Agent").
The Company has made an initial public offering (the "Offering") of up
to 2,300,000 Units (including up to 300,000 Units that may be offered pursuant
to the underwriters' over-allotment option), each Unit (a "Unit") consisting of
one share of common stock, par value $.01 per share, of the Company (the "Common
Stock"), and one Class A redeemable Common Stock purchase warrant (each a
"Warrant") that entitles the holder to initially purchase one share of Common
Stock, subject to modification and adjustment as provided herein.
On the closing date of the Offering (together with the closing date, if
any, on which Units are sold by the Company to the underwriters pursuant to the
underwriters' over-allotment option, the "Closing Date"), the Company proposes
to issue certificates evidencing the Units (such Unit certificates issued
pursuant to this Agreement being hereinafter collectively called the "Unit
Certificates") and certificates evidencing the shares of Common Stock and the
Warrants included in each Unit. From and after the Separation Date (as
hereinafter defined), the Unit Agent will deliver certificates evidencing the
Warrants and certificates evidencing the Common Stock included in each Unit upon
surrender of the Unit Certificates by the holders thereof (such Warrant
certificates and Common Stock certificates being hereinafter collectively called
the "Warrant Certificates" and the "Common Stock Certificates," respectively).
The Company desires the Unit Agent, the Warrant Agent and the Transfer Agent,
and the Unit Agent, the Warrant Agent and the Transfer Agent have agreed, to act
on behalf of the Company in connection with the issuance, transfer, exchange,
replacement and surrender of the Unit Certificates, the Warrant Certificates and
the Common Stock Certificates, respectively.
In connection with the Offering, the Company included in its
registration statement on Form S-1 (Reg. No. 333-47725) filed with the
Securities and Exchange Commission (the "SEC") the Units, the shares of Common
Stock and the Warrants underlying the Units and the shares of the Company's
Common Stock issuable upon exercise of the Warrants (collectively, the "Warrant
Shares"). The term "Registration Statement" means such registration statement as
amended at the time it becomes or became effective, including financial
statements and all exhibits, documents incorporated by reference therein and any
information deemed to be included by Rule 430A or Rule 424 under the Securities
Act.
The Company and the Unit Agent, the Warrant Agent and the Transfer
Agent desire to set forth in this Agreement, among other things, the form and
provisions of each of the Unit Certificates and the Warrant Certificates and the
terms and conditions under which they may be issued, transferred, exchanged,
replaced and surrendered in connection with (i) the sale of Unit Certificates,
(ii) the exchange of Unit Certificates for Warrant Certificates and Common Stock
Certificates and (iii) the exercise of the Warrants.
<PAGE> 5
In consideration of the promises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Adjustment Event" is defined in Section 5.1.
"AMEX" means the American Stock Exchange.
"Applicable Exercise Price" is defined in Section 3.1.
"Closing Date" is defined in the preamble.
"Closing Price" is defined in Section 5.1(d)(i).
"Common Stock" is defined in the preamble.
"Common Stock Certificate" is defined in the preamble.
"Company" is defined in the preamble.
"Corporate Office" is defined in Section 3.3.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Date" is defined in Section 3.3.
"Exercise Deadline" is defined in Section 3.2.
"Exercise Period" is defined in Section 3.2.
"Material Event" means the occurrence of any of the following
events: (i) any capital reorganization of the Company or reclassification of the
Company's Common Stock (other than a change in the par value of the Company's
Common Stock), (ii) any merger of the Company with or into another person
(including any individual, partnership, joint venture, corporation, trust or
group thereof) in which the Company is not the surviving corporation, or any
sale, lease, transfer or conveyance of all or substantially all of the property
and assets of the Company or (iii) the commencement by any "person" or "group"
(within the meaning of Section 13(d) and Section 14(d) of the Exchange Act) of a
bona fide tender offer or exchange offer in accordance with the rules and
regulations of the Exchange Act to purchase shares of Common Stock of the
Company.
"NASD" means the National Association of Securities Dealers,
Inc.
2
<PAGE> 6
"Offering" is defined in the preamble.
"Property" is defined in section 5.1(d)(ii).
"Redemption Date" is defined in Section 5.6.
"Redemption Price" is defined in Section 4.1.
"Registration Statement" is defined in the preamble.
"SEC" is defined in the preamble.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" is defined in Section 3.2.
"Signatures Guaranteed" is defined in Section 3.3.
"Transfer Agent" means American Stock Transfer & Trust
Company, in its capacity as transfer agent for the Common Stock, and any
successor thereto.
"Underwriting Agreement" is defined in Section 2.2(b)(i).
"Unit" is defined in the preamble.
"Unit Agent" means American Stock Transfer & Trust Company, in
its capacity as Unit Agent, and any successor thereto.
"Unit Certificate" is defined in the preamble.
"Warrant" is defined in the preamble.
"Warrant Agent" means American Stock Transfer & Trust Company,
in its capacity as Warrant Agent, and any successor thereto.
"Warrant Certificate" is defined in the preamble.
"Warrant Shares" is defined in the preamble.
ARTICLE II
DISTRIBUTION OF UNIT, WARRANT AND COMMON STOCK CERTIFICATES
2.1. Appointment of Unit Agent, Warrant Agent and Transfer Agent. The
Company hereby appoints the Unit Agent, the Warrant Agent and the Transfer Agent
to act on its behalf in accordance with this Agreement, and each of the Unit
Agent, the Warrant Agent and the Transfer Agent hereby accepts such appointment.
3
<PAGE> 7
2.2. Issuance and Distribution of Unit Certificates, Warrant
Certificates and Common Stock Certificates.
(a) Prior to the Separation Date, the shares of Common Stock
and the Warrants included in the Units owned by each registered holder of Units
will be represented by Unit Certificates to be issued by the Company.
(b) At least two business days prior to any Closing Date,
(i) the Company shall deliver to the Unit Agent the
appropriate number of Unit Certificates representing the number of Units to be
sold on such Closing Date pursuant to the Offering, in the form described in
Section 2.3 hereof and executed on behalf of the Company as described in Section
2.4 hereof. Upon receipt of a written order from the Company, the Unit Agent
shall complete and countersign Unit Certificates representing up to 2,300,000
Units (including up to 300,000 Units if the underwriters' over-allotment option
in exercised in full) and deliver such Unit Certificates to Janssen/Meyers
Associates, L.P. (the "Underwriter") as provided in the Underwriting Agreement,
dated September __, 1998, between the Underwriter and the Company (the
"Underwriting Agreement"),
(ii) the Company shall deliver or cause to be delivered to the
Unit Agent the appropriate number of Common Stock Certificates representing the
number of shares of Common Stock included in the Units sold pursuant to the
Offering. Such Common Stock Certificates shall be in the form as filed with the
Registration Statement and duly executed in the manner provided in the
Underwriting Agreement and shall be held by the Unit Agent pending the exchange
by the registered holders of Unit Certificates for Common Stock Certificates and
Warrant Certificates on or after the Separation Date, as described in Section
2.7 hereof, and
(iii) the Company shall deliver, or cause to be delivered, to
the Warrant Agent the appropriate number of Warrant Certificates representing
the number of Warrants included in the Units sold pursuant to the Offering. Such
Warrant Certificates shall be in the form described in Section 2.5 hereof and
executed on behalf of the Company as described in Section 2.6 hereof. Promptly
upon receipt of such Warrant Certificates, the Warrant Agent shall complete and
countersign such Warrant Certificates and shall promptly deliver them to the
Unit Agent. Such Warrant Certificates shall be held by the Unit Agent pending
the exchange by the registered holders of Unit Certificates for Common Stock
Certificates and Warrant Certificates on or after the Separation Date, as
described in Section 2.7 hereof.
2.3. Form of Unit Certificates. The Unit Certificates shall be issued
in registered form only and, together with the assignment form to be printed on
the reverse thereof, shall be substantially in the form of Exhibit A attached
hereto and, in addition, may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement or
as, in any particular case, may be required, in the opinion of counsel for the
Company, to comply with any law or with any rule or regulation of any regulatory
authority or agency made pursuant thereto or with any rule or regulation of the
NASD, AMEX or any stock exchange or automated quotation
4
<PAGE> 8
system on which the Units may from time to time be listed or quoted, or to
conform to customary usage.
2.4. Execution of Unit Certificates. The Unit Certificates shall be
executed on behalf of the Company by its Chairman of the Board, Chief Executive
Officer or President or any Vice President, and by its Chief Financial Officer
or Treasurer or any Assistant Treasurer, or Secretary or any Assistant
Secretary, either manually or by facsimile signature printed thereon. The Unit
Certificates shall be manually countersigned and dated the date of
countersignature by the Unit Agent and shall not be valid for any purpose unless
so countersigned and dated. In case any authorized officer of the Company who
shall have signed any of the Unit Certificates shall cease to be such officer of
the Company either before or after delivery thereof by the Company to the Unit
Agent, the signature of such person on such Unit Certificates shall,
nevertheless, be valid and such Unit Certificates may be countersigned by the
Unit Agent and issued and delivered to those persons entitled to receive the
Units represented thereby with the same force and effect as though the person
who signed such Unit Certificates had not ceased to be such officer of the
Company.
2.5. Form of Warrant Certificates. The Warrant Certificates shall be
issued in registered form only and, together with the election to purchase form
and assignment form to be printed on the reverse thereof, shall be substantially
in the form of Exhibit B attached hereto and, in addition, may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements stamped, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement or as, in any particular case, may be required, in
the opinion of counsel for the Company, to comply with any law or with any rule
or regulation of any regulatory authority or agency made pursuant thereto or
with any rule or regulation of the NASD, AMEX or any stock exchange or any
automated quotation system on which the Warrants may from time to time be listed
or quoted, or to conform to customary usage.
2.6. Execution of Warrant Certificates. The Warrant Certificates shall
be executed on behalf of the Company by its Chairman of the Board, Chief
Executive Officer or President or any Vice President, and by its Chief Financial
Officer or Treasurer or any Assistant Treasurer, or Secretary or any Assistant
Secretary, either manually or by facsimile signature printed thereon. The
Warrant Certificates shall be manually countersigned and dated the date of
countersignature by the Warrant Agent and shall not be valid for any purpose
unless so countersigned and dated. In case any authorized officer of the Company
who shall have signed any of the Warrant Certificates shall cease to be such
officer of the Company either before or after delivery thereof by the Company to
the Warrant Agent, the signature of such person on such Warrant Certificates
shall, nevertheless, be valid and such Warrant Certificates may be countersigned
by the Warrant Agent and issued and delivered to those persons entitled to
receive the Warrants represented thereby 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.
2.7. Exchange of Unit Certificates. Each registered holder of Unit
Certificates may, on and after the Separation Date, exchange such holder's Unit
Certificates, for (i) Common Stock Certificates representing one share of Common
Stock for each Unit represented
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by such Unit Certificates and (ii) Warrant Certificates representing one Warrant
for each Unit represented by such Unit Certificates by surrendering such Unit
Certificates to the Unit Agent at the office of the Unit Agent. Upon any such
surrender for exchange, the Unit Agent shall deliver to the person entitled
thereto Common Stock Certificates representing the number of shares of Common
Stock included in the Units and Warrant Certificates representing the number of
Warrants included in the Units represented by each Unit Certificate so
surrendered.
2.8. Transfer of Units and Warrants. The Unit Agent shall keep at its
offices books in which Unit Certificates and the transfer thereof shall be
registered. The Warrant Agent shall register the Warrants included in the Units
in the names of the registered holders thereof and register the transfer of such
Warrants at such time as the Unit Certificates representing such Warrants are
transferred and, from and after the Separation Date, the Warrant Agent shall
register the transfer of Warrant Certificates. The Transfer Agent shall register
the shares of Common Stock included in the Units in the names of the registered
holders thereof and register the transfer of such shares at such time as the
Unit Certificates representing such shares are transferred. From and after the
Separation Date, the Unit Agent shall not register any transfers of the Unit
Certificates. Registration of all certificates pursuant to this Section 2.8 and
the transfer thereof shall be done in accordance with the provisions of this
Agreement and, to the extent not inconsistent, the regular practice of the Unit
Agent, the Warrant Agent or the Transfer Agent, as the case may be.
ARTICLE III
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
3.1. Applicable Exercise Price. During the Exercise Period, each
Warrant Certificate shall, when properly executed by the Company and
countersigned by the Warrant Agent, entitle the registered holder thereof to
purchase from the Company (and the Company shall issue and sell to such
registered holder upon exercise as provided herein), for each Warrant evidenced
thereby, one share of Common Stock, at a purchase price initially equal to $6.00
per share, as such purchase price and number of shares purchasable may be
adjusted from time to time pursuant to the provisions of Article V hereof,
payable in full at the time of exercise. Except as the context otherwise
requires, the term "Applicable Exercise Price" as used in this Agreement shall
mean the purchase price of one share of Common Stock, as the case may be, upon
the exercise of a Warrant reflecting all appropriate adjustments made in
accordance with the provisions of Article V hereof.
3.2. Exercisability of Warrants. Each Warrant may be exercised at any
time or from time to time on or after __________ __, 1999 or on such earlier
date as determined by the Underwriter (the "Separation Date"), and will expire
at 5:00 p.m., New York City time, on the earlier to occur of (i) __________ __,
2003 or (ii) the business day immediately preceding the Redemption Date (the
"Exercise Deadline"). The term "Exercise Period" as used in this Agreement shall
mean the period from and including the Separation Date through the Exercise
Deadline. Upon its exercise, each Warrant shall automatically terminate.
3.3. Procedure for Exercise of Warrants. During the Exercise Period and
subject to the provisions of Section 3.2 hereof, the Warrants may be exercised
by surrendering
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the Warrant Certificates representing such Warrants to the Warrant Agent at its
principal corporate office (the "Corporate Office"), which is currently at 40
Wall Street, New York, New York, with the election to purchase form set forth on
the Warrant Certificates duly completed and executed, with a medallion or other
acceptable signature guarantee by a member firm of a national securities
exchange, a commercial bank or trust company located in the United States, a
member of the NASD or other eligible guarantor institution which is a
participant in a medallion signature guarantee program or a signature guarantee
program (as such terms are defined in Reg. 240.17Ad-15 under the Exchange Act)
acceptable to the Warrant Agent ("Signatures Guaranteed"), accompanied by
payment in full of the Applicable Exercise Price as provided in Section 3.1 in
effect at the time of such exercise, together with such taxes as are specified
in the last sentence of Section 8.1(b) hereof, for each Warrant Share with
respect to which such Warrants are being exercised. Such Applicable Exercise
Price and taxes shall be paid in full by certified check or money order, payable
in United States currency to the order of the Company. The date a Warrant is
exercised in accordance with this Section 3.3 is sometimes referred to herein as
the "Exercise Date" with respect to such Warrant. As soon as practicable on or
after the Exercise Date of any Warrants, the Warrant Agent shall notify the
Company in writing of the exercise of such Warrants.
3.4. Issuance of Warrant Shares. As soon as practicable after the
Exercise Date with respect to a Warrant, the Company shall issue, or cause the
Transfer Agent to issue, a certificate or certificates for the number of full
shares of its Common Stock to which such holder is entitled upon exercise of
such Warrant, registered in accordance with the instructions set forth on the
election to purchase. All Warrant Shares shall be validly authorized and, when
issued upon exercise of the Warrants and paid for in accordance with the terms
hereof, fully paid and nonassessable and free from all taxes, liens, security
interests, charges and other encumbrances or restrictions on sale created by the
Company in respect of the issue thereof, and free and clear of all preemptive
rights, and shall be previously unissued shares. The Company will use its best
efforts to maintain an effective registration statement under the Securities Act
such that the issuance of such Warrant Shares shall be registered by the Company
under the Securities Act, in accordance with the provisions of Article VII
hereof. Each person in whose name any such certificate for Warrant Shares is
issued shall for all purposes be deemed to have become the holder of record of
the Warrant Shares represented thereby on the Exercise Date of the Warrants
resulting in the issuance of such shares, irrespective of the date of issuance
or delivery of such certificate for the Warrant Shares.
3.5. Certificates for Unexercised Warrants. In the event that less than
all of the Warrants represented by a Warrant Certificate are exercised, the
Warrant Agent shall execute and mail, by first-class mail, within 30 days of the
Exercise Date, to the registered holder of such Warrant Certificate, or such
other person as shall be designated in the election to purchase, a new Warrant
Certificate representing the number of full Warrants not exercised. In no event
shall a fraction of a Warrant be exercised, and the Warrant Agent shall
distribute no Warrant Certificates representing fractions of Warrants under this
or any other section of this Agreement. Fractions of shares and Warrants shall
be treated as provided in Section 5.1(e).
3.6. Reservation of Shares. The Company shall at all times reserve and
keep available for issuance upon the exercise of Warrants the maximum number of
its authorized but
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unissued shares of Common Stock that will be sufficient to permit the exercise
in full of all outstanding Warrants.
3.7. Disposition of Proceeds. The Warrant Agent shall account at least
monthly (or more frequently upon the request of the Company, provided that in no
event shall the Warrant Agent be required to account more frequently than
weekly) to the Company with respect to Warrants exercised and concurrently
deliver to the Company all funds to which the Company is entitled.
ARTICLE IV
REDEMPTION OF WARRANTS
4.1. Redemption Price. The Company may, at its option, upon not less
than 30 days' prior notice, call for redemption, in whole or in part, all of the
outstanding Warrants at a redemption price of $.10 per Warrant (such price is
hereinafter referred to as the "Redemption Price"), at any time on or after the
fifteenth month following the date of the prospectus of which the Registration
Statement forms a part, provided that (i) the last sales price of the Company's
Common Stock as reported by AMEX (or such exchange on which the Common Stock is
then traded) for 20 consecutive trading days ending within ten days of the date
of the notice of redemption is at least $9.00 and (ii) there is a current
registration statement covering the resale of the underlying shares of Common
Stock. Notice of such redemption must be given to the Warrant Agent by the
Company pursuant to Section 5.6 no later than 15 days following the end of such
20-day period. In the event the company exercises its right to redeem the
Warrants, such will be exercisable until the close of business on the business
day immediately preceding the Redemption Date. In the event the Company
exercises its right to redeem less than all of the outstanding Warrants as
provided in this Section 4.1, the number of Warrants to be surrended by each
registered holder thereof shall be such holder's pro rata portion of the total
amount to be redeemed by the Company at the time the Company's right is
exercised. If any Warrant called for redemption is not exercised by such time,
such Warrant shall cease to be exercisable and the holder thereof shall be
entitled only to receive the Redemption Price.
4.2. Payment of Redemption Price. On or prior to the opening of
business on the Redemption Date, the Company will deposit with the Warrant Agent
funds in form satisfactory to the Warrant Agent sufficient to purchase all the
Warrants being redeemed. Payment of the Redemption Price will be made by the
Warrant Agent upon presentation and surrender of the Warrant Certificates
representing such Warrants to the Warrant Agent at its Corporate Office.
ARTICLE V
ADJUSTMENTS AND NOTICE PROVISIONS
5.1. Adjustment of Exercise Price and Number of Shares of Common Stock
or Warrants. The number of shares of Common Stock purchasable upon the exercise
of each
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Warrant and the Applicable Exercise Price shall be subject to adjustment as
follows (each, an "Adjustment Event"):
(a) Stock Dividends and Stock Splits. If at any time after the
date hereof and before the Exercise Deadline (i) the Company shall fix a record
date for the issuance of any dividend payable in shares of its Common Stock or
(ii) the number of shares of Common Stock shall have been increased by a
subdivision or split-up of shares of such Common Stock, then, on the record date
fixed for the determination of holders of Common Stock entitled to receive such
dividend or immediately after the effective time of subdivision or split-up, as
the case may be, the number of shares of Common Stock to be delivered upon
exercise of each Warrant will be appropriately increased so that each registered
holder thereafter will be entitled to receive the number of shares of Common
Stock that such registered holder would have owned immediately following such
action had such Warrant been exercised immediately prior thereto, and the
Applicable Exercise Price will be appropriately adjusted as provided below in
Section 5.1(g). The time of occurrence of an event giving rise to an adjustment
made pursuant to this Section 5.1(a) shall, in the case of a subdivision or
split-up, be the effective time thereof and shall, in the case of a stock
dividend, be the record date thereof. With respect to any Warrant exercised on
or after the record date for the issuance of a stock dividend and prior to the
payment date for such dividend, the Company shall not be required to deliver to
the registered holder of such Warrant the number of additional shares of Common
Stock to which such registered holder may be entitled pursuant to the adjustment
provided for in this Section 5.1(a), unless and until such time as such stock
dividend is paid to the holders of Common Stock. If a dividend is declared and
such dividend is not paid, the Applicable Exercise Price shall again be adjusted
to be the Applicable Exercise Price in effect immediately prior to such record
date.
(b) Combination of Stock. If at any time after the date hereof
and before the Exercise Deadline the number of shares of Common Stock
outstanding shall have been decreased by a combination of the outstanding shares
of Common Stock, then, immediately after the effective time of such combination,
the number of shares of Common Stock to be delivered upon exercise of each
Warrant will be appropriately decreased so that the registered holder thereafter
will be entitled to receive the number of shares of Common Stock that such
registered holder would have owned immediately following such action had such
Warrant been exercised immediately prior thereto, and the Applicable Exercise
Price will be appropriately adjusted as provided below in Section 5.1(g).
(c) Reorganization. If at any time after the date hereof and
before the Exercise Deadline there shall be effected any capital reorganization
of the Company, or any reclassification of the Company's Common Stock, or any
consolidation of the Company with or merger of the Company with or into any
other person (including any merger or consolidation in which the Company is the
continuing or surviving corporation and which results in a reclassification of
or change in outstanding shares of its Common Stock, but excluding any merger or
consolidation in which the Company is the continuing or surviving corporation
and which does not result in any reclassification of or change in outstanding
shares of its Common Stock) or any sale, lease or other transfer of all or
substantially all of the assets of the Company to any other person (including
any individual, partnership, joint venture, corporation, trust or group
thereof), in such a way that the holders of the Common Stock shall be entitled
to receive stock, other securities, cash or assets (whether such stock, other
securities, cash or assets are
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issued or distributed by the Company or another person) with respect to or in
exchange for Common Stock, then, as a condition precedent to the consummation of
any such transaction, the Company shall cause effective provisions to be made so
that upon exercise of each Warrant, the registered holder shall have the right
to receive the kind and amount of stock, other securities, cash or assets
receivable upon such reorganization, reclassification, consolidation, merger or
sale, lease or other transfer by a holder of the number of shares of the Common
Stock that such registered holder would have been entitled to receive upon
exercise of a Warrant had the Warrant been exercised immediately prior to such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer. The Company shall take such steps in connection with any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
securities or property thereafter delivered upon exercise of the Warrants. The
Company or any successor person (to the extent that holders of the Company's
Common Stock will be entitled to receive stock or other securities of such
successor), as the case may be, shall execute and deliver to the Warrant Agent a
supplemental agreement so providing and providing that the successor person, if
any, shall assume the obligations of the Company hereunder. The provisions of
this paragraph (c) shall similarly apply to successive mergers, consolidations
or sales.
(d) Distributions and Rights Offering. (i) If at any time
after the date hereof and before the Exercise Deadline the Company shall issue
to all holders of its Common Stock or sell, or fix a record date for the
issuance to all holders of its Common Stock of, rights, options or warrants
entitling the holders thereof to subscribe for or purchase its Common Stock (or
other securities convertible or exchangeable into or exercisable for its Common
Stock), in any such case, at a price per share (or having a conversion, exchange
or exercise price per share) that is less than the closing price per share of
Common Stock on AMEX, or on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed on AMEX or
traded on any such exchange, the fair market value per share of the Common Stock
as reasonably determined by the Board of Directors of the Company (the "Closing
Price") on the date of such issuance or sale or on such record date then,
immediately after the date of such issuance or sale or on such record date, the
number of shares of the Common Stock to be delivered upon exercise of each
Warrant shall be appropriately increased so that the registered holder
thereafter will be entitled to receive the number of shares of the Common Stock
determined by multiplying the number of shares of Common Stock such registered
holder would have been entitled to receive immediately before the date of such
issuance or sale or such record date by a fraction, the numerator of which will
be the number of shares of Common Stock outstanding (including, for this
purpose, all Common Stock issuable upon conversion of all convertible preferred
stock) on such date plus the number of additional shares of Common Stock offered
for subscription or purchase (or into which the convertible or exchangeable
securities or rights, options or warrants so offered are initially convertible
or exchangeable or exercisable, as the case may be) and the denominator of which
will be the number of shares of the Common Stock outstanding (including, for
this purpose, all shares of such Common Stock issuable upon conversion of all
convertible preferred stock) on such date plus the number of shares of Common
Stock that the aggregate offering price of the total number of shares so offered
for subscription or purchase (or the aggregate initial conversion price,
exchange price or exercise price of the convertible securities or exchangeable
securities or rights, options or warrants, as the case may be, so offered) would
purchase at such Closing Price, and the Applicable Exercise Price shall be
adjusted as provided below in Section 5.1(g). Shares of
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Common Stock and convertible preferred stock of the Company owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such a
record date is fixed and, in the event that such rights or warrants are not so
issued, the Applicable Exercise Price shall again be adjusted to be the
Applicable Exercise Price which would then be in effect if such record date had
not been fixed.
(ii) If (other than in a dissolution or liquidation) the
Company shall, at any time after the date hereof and before the Exercise
Deadline, fix a record date for the distribution to all holders of its Common
Stock any shares of capital stock of such Company (other than its Common Stock)
or evidences of its indebtedness or assets (excluding cash dividends or
distributions paid from retained earnings of the Company) or rights or warrants
to subscribe for or purchase any of its securities (excluding those referred to
in paragraph (d)(i) above) (any of the foregoing being hereinafter in this
paragraph (d)(ii) called the "Property"), then in each such case, unless the
Company elects to reserve shares or other units of such Property for
distribution to the registered holder upon exercise of the Warrants of such
registered holder so that, in addition to the shares of the Company's Common
Stock to which such registered holder is entitled, such registered holder will
receive upon such exercise the amount and kind of such Property that such
registered holder would have received if the registered holder had, immediately
prior to the record date for the distribution of the Property, exercised the
Warrant, then the number of shares of the Company's Common Stock to be delivered
to such registered holder upon exercise of the Warrant shall be increased so
that the registered holder thereafter shall be entitled to receive the number of
shares of such Common Stock determined by multiplying the number of shares such
registered holder would have been entitled to receive immediately before such
record date had the registered holder exercised the Warrant immediately prior
thereto by a fraction, the numerator of which shall be the Closing Price per
share of such Common Stock on such record date plus the then fair market value
(as reasonably determined by the Board of Directors of the Company) of the
portion of the capital stock or assets or evidences of indebtedness so
distributed or of such rights or warrants applicable to one share of the Common
Stock and the denominator of which shall be the Closing Price of the Common
Stock, and the Applicable Exercise Price shall be adjusted as provided below in
Section 5.1(g). If a record date for such distribution is fixed and such
distribution is not made, the Applicable Exercise Price shall again be adjusted
to be the Applicable Exercise Price in effect immediately prior to such record
date.
(e) No Fractional Shares. No fractional shares of any Common
Stock or scrip shall be issued to any registered holder in connection with the
exercise of any Warrant. Instead of any fractional shares of its Common Stock
that would otherwise be issuable to such registered holder, the Company will pay
to such registered holder a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest of the then current
Closing Price per share of its Common Stock.
(f) Adjustment Carryovers. Notwithstanding any other provision
of this Article V, no adjustment shall be made to the number of shares of the
Common Stock to be delivered to the registered holder (or to the Applicable
Exercise Price) if such adjustment represents less than 1% of the number of
shares to be so delivered, but any lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall amount to 1% or
more of the number of shares of the Company's Common Stock to be so delivered.
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(g) Exercise Price Adjustment. Whenever the number of shares
of Common Stock purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Applicable Exercise Price payable upon the exercise of each
Warrant shall be adjusted by multiplying such Applicable Exercise Price
immediately prior to such adjustment by a fraction of which the numerator shall
be the number of shares of Common Stock purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of shares of Common Stock purchasable immediately thereafter.
5.2. No Adjustment for Dividends. Except as provided in Section 5.1, no
adjustment in respect of any dividends shall be made during the term of any
Warrant or upon the exercise of any Warrant.
5.3. Other Adjustments. Notwithstanding anything to the contrary in
this Agreement, at its sole discretion, the Company may lower the Applicable
Exercise Price applicable to its Common Stock.
5.4. Notice of Adjustment. Whenever the Company adjusts the number of
Warrant Shares that may be purchased upon the exercise of the Warrants or the
Applicable Exercise Price as required by this Agreement, the Company shall
promptly mail by first class, postage prepaid, to each registered holder and the
Warrant Agent, notice of such adjustment or adjustments and a certificate of the
President, Chief Financial Officer or Treasurer of the Company setting forth the
number of shares of the Company's Common Stock purchasable upon the exercise of
each Warrant and the Applicable Exercise Price after such adjustment, setting
forth in reasonable detail the facts requiring such adjustment and setting forth
the computation by which such adjustment was made.
5.5. Notices of Corporate Action. In the event of
(a) the taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right or
warrant to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right or
warrant, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
Material Event involving the Company, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any other event that would result in an adjustment
pursuant to this Article V of the Applicable Exercise Price with respect to the
Common Stock or the number of Warrant Shares that may be purchased upon exercise
of a Warrant, the Company will mail to each registered holder at the address
appearing in the register maintained by the Warrant Agent and to the Warrant
Agent a notice specifying (i) the date or expected date on which any such record
is to be taken for the purpose of such dividend, distribution or right and the
amount and character of any such dividend, distribution or right, (ii) the date
or expected date on which any
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such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation, winding-up or other event is to take place
and the time, if any, such time is to be fixed, as of which the holders of
record of the Company's Common Stock (or other securities) shall be entitled to
exchange their shares of such Common Stock (or other securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation, winding-up or other event and (iii) in the case of a
Material Event, to the extent known, the amount and type of consideration (or
the means of determining the consideration) the holders of record of the Common
Stock are entitled to receive. Such notice shall be mailed at least 10 days
prior to the date therein specified, in the case of any date referred to in the
foregoing subdivision (i), and at least 10 days prior to the date therein
specified, in the case of the date referred to in the foregoing subdivision
(ii). Notwithstanding anything to the contrary in this Section 5.5, with respect
to any transaction or other event pursuant to which the Company is required to
deliver to holders of Common Stock a Schedule 14D-9 (the "Schedule 14D-9")
pursuant to the rules and regulations under the Exchange Act the Company's
notice obligations to the registered holders of Warrants pursuant to this
Section 5.5 shall be limited to mailing to each registered holder of Warrants at
the address appearing in the register maintained by the Warrant Agent and to the
Warrant Agent a copy of the Schedule 14D-9 at the same time such Schedule 14D-9
is mailed to holders of Common Stock.
5.6. Notice of Redemption. Notice of any call for redemption shall be
given to the Warrant Agent by the Company upon not less than 30 days nor more
than 60 days prior to the date established for such redemption (the "Redemption
Date") and subject to Section 4.1 hereof, such notice shall be mailed to all
registered holders of Warrant Certificates by the Warrant Agent promptly after
the Company shall have given such notice to the Warrant Agent. Such notice of
redemption will specify the Redemption Date and the Redemption Price. The notice
will state that payment of the Redemption Price will be made by the Warrant
Agent upon presentation and surrender of the Warrant Certificates representing
such Warrants to the Warrant Agent at its Corporate Office, and will also state
that the right to exercise the Warrants will terminate at 5:00 p.m., New York
City time, on the business day immediately preceding the Redemption Date. The
Company will also make prompt public announcement of such redemption by news
release and by notice to AMEX or any national securities exchange on which the
Warrants are listed for trading.
5.7. Verification of Computations. Whenever the Applicable Exercise
Price for the Common Stock is adjusted as provided in this Article V, the
Company will promptly obtain a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the exercise price as so
adjusted and a brief statement of the facts accounting for such adjustment, and
will make available upon request a brief summary thereof to the holders of the
Warrant Certificates (which summary may be included in any notice of adjustment
required by Section 5.4 hereof if the Company so elects).
5.8. Effect of Failure to Give Notice. The failure to give any notice
required by this Article V or any defect therein shall not affect the legality
or validity of any distribution, right, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation, winding-up or other event or the
vote upon any such action.
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5.9. Warrant Certificate Amendments. Irrespective of any adjustments
pursuant to this Article V, Warrant Certificates theretofore or thereafter
issued need not be amended or replaced but certificates thereafter issued shall
bear an appropriate legend or other notice of any adjustments.
ARTICLE VI
OTHER PROVISIONS RELATING
TO RIGHTS OF REGISTERED HOLDERS
OF UNIT CERTIFICATES AND WARRANT CERTIFICATES
6.1. Rights of Unit Holders. The registered holder of any Unit or Unit
Certificate shall, by virtue of such holder's beneficial ownership of the Common
Stock included in the Unit, be entitled to all rights of a stockholder of the
Company, including, without limitation, the right to vote, to receive dividends
and other distributions and to receive notice of, and to attend, meetings of
stockholders and any other proceedings of the Company.
6.2. Rights of Warrant Holders.
(a) The registered holder of any Warrant or Warrant
Certificate shall not, solely by virtue thereof, be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, until
such holder shall have exercised such Warrants and been issued shares of Common
Stock of the Company in accordance with the provisions hereof, in which case
such exercising holder shall be entitled only to the rights of a stockholder of
the Company for the Common Stock for which such Warrants were exercised.
(b) All rights of action in respect of this Agreement are
vested in the respective registered holders of the Warrant Certificates; and any
registered holder of any Warrant Certificate, without the consent of the Warrant
Agent or of the holder of any other Warrant Certificate, may, in such holder's
own behalf and for such holder's own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, such holder's rights to exercise the Warrants
evidenced by the Warrant Certificate in the manner provided in such Warrant
Certificate and in this Agreement.
6.3. Lost, Stolen, Mutilated or Destroyed Unit Certificates or Warrant
Certificates. If any Unit Certificate or Warrant Certificate shall be mutilated,
lost, stolen or destroyed, the Company shall direct the Unit Agent or the
Warrant Agent, as the case may be, to execute and deliver, in exchange and
substitution for, and upon cancellation of a mutilated Unit Certificate or
Warrant Certificate, or in lieu of or in substitution for a lost, stolen or
destroyed Unit Certificate or Warrant Certificate, a new Unit Certificate or
Warrant Certificate for the number of Units or Warrants represented by the Unit
Certificate or Warrant Certificate so mutilated, lost, stolen or destroyed, but
only upon receipt of evidence of such loss, theft or destruction of such Unit
Certificate or Warrant Certificate, and of the ownership thereof, and
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indemnity, if requested, all satisfactory to the Company and the Unit Agent or
Warrant Agent, as the case may be. Applicants for such substitute Unit
Certificates or Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges incidental thereto
as the Company or the Unit Agent or the Warrant Agent may prescribe. Any such
new Unit Certificate or Warrant Certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Unit Certificate or Warrant Certificate shall be
at any time enforceable by anyone.
ARTICLE VII
TRANSFER AND REGISTRATION OF UNITS AND WARRANTS;
LISTING OF WARRANT SHARES
7.1. Sale of Units, Warrants and Warrant Shares. The Units and the
Warrants, and any interest in any of them, may be sold, assigned, pledged,
encumbered or in any other manner transferred or disposed of, in whole or in
part, only in accordance with Article VIII hereof and in compliance with
applicable United States federal and state securities laws and the terms and
conditions hereof.
7.2. Registration of Units, Warrants and Warrant Shares. The issuance
of the Units, the Common Stock and Warrants included in the Units and the
Warrant Shares have been registered under the Securities Act pursuant to the
Registration Statement. The Company covenants and agrees that from and after the
Separation Date:
(a) it will use all commercially reasonable efforts to either
(i) maintain the effectiveness of the Registration Statement through the
Exercise Deadline or until such time as no Warrants remain outstanding or (ii)
prepare and file with the SEC a registration statement and the prospectuses used
in connection therewith as may be necessary to keep such registration statement
with respect to the Warrant Shares effective from the Separation Date through
the Exercise Deadline or until such earlier time as no Warrants remain
outstanding;
(b) as expeditiously as possible, it will register or qualify
the Warrant Shares to be delivered upon exercise of the Warrants under the
securities or Blue Sky laws of each jurisdiction in which such registration or
qualification is necessary and use its best efforts to maintain all such
registrations or qualifications in effect from the Separation Date through the
Exercise Deadline or until such earlier time as no Warrants remain outstanding;
provided, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject; and
(c) it will pay all expenses incurred by the Company in
complying with this Section 7.2, including, without limitation, (i) all
registration and filing fees, (ii) all printing expenses, (iii) all fees and
disbursements of counsel and independent public accountants, (iv) all NASD and
Blue Sky fees and expenses (including fees and expenses of counsel in connection
with any Blue Sky surveys), and (v) the entire expense of any special audits
incident to or required by any such registration.
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7.3. Listing of Warrant Shares on Securities Exchanges. The Company
will use its best efforts to list for quotation on AMEX, or such other
over-the-counter quotation system on which the Common Stock may at any time be
listed, or on any national securities exchange on which the Common Stock may at
any time be listed, the Warrant Shares, and will maintain such listing so long
as any other shares of Common Stock are so listed; and the Company shall use its
best efforts to so list on AMEX, or such other over-the-counter quotation
system, or each national securities exchange, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of the Warrants if and so long as any shares of capital stock of the same class
are traded on AMEX or such over-the-counter quotation system or listed on such
national securities exchange. Any such quotation or listing will be at the
Company's expense.
7.4. Availability of Information. Until three years after the Exercise
Deadline, the Company will comply with all applicable periodic public
information reporting requirements of the SEC to which it may from time to time
be subject.
ARTICLE VIII
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION
OF UNIT CERTIFICATES AND WARRANT CERTIFICATES
8.1. Split Up, Combination, Exchange and Transfer of Unit Certificates
and Warrant Certificates.
(a) Unit Certificates. Prior to the Separation Date and the
issuance of Warrant Certificates and Common Stock Certificates in exchange for
Unit Certificates pursuant to Section 2.7 hereof, Unit Certificates, subject to
the provisions of Section 8.2, may be split up, combined or exchanged for other
Unit Certificates representing a like aggregate number of Units or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Unit Certificate or Unit Certificates shall make such request in
writing delivered to the Unit Agent at its Corporate Office prior to the
Separation Date and shall surrender the Unit Certificate or Unit Certificates so
to be split up, combined or exchanged at said office. Subject to any applicable
laws, rules or regulations restricting transferability, any restriction on
transferability that may appear on a Unit Certificate in accordance with the
terms hereof, or any "stop-transfer" instructions the Company may give to the
Unit Agent to implement any such restrictions (which instructions the Company is
expressly authorized to give), transfer of outstanding Unit Certificates may be
effected by the Unit Agent from time to time until the Separation Date upon the
books of the Company to be maintained by the Unit Agent for that purpose, upon a
surrender of the Unit Certificate to the Unit Agent at its Corporate Office,
with the assignment form set forth in the Unit Certificate duly executed and
with Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Unit Agent shall execute and deliver to the person
entitled thereto a Unit Certificate or Unit Certificates, an the case may be, as
so requested. The Unit Agent may require the holder to pay a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
split up, combination, exchange or transfer of Unit Certificates prior to the
issuance of any new Unit Certificate. On
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<PAGE> 20
and subsequent to the Separation Date, the Unit Agent shall not record any split
up, combination, exchange or transfer of Unit Certificates.
(b) Warrant Certificates. Prior to the Separation Date, a
Warrant may not be divided or combined with other Warrants or exchanged,
assigned or transferred except as part of the Unit in which such Warrant is
included, and the Warrant Agent will not record an exchange, assignment or
transfer of a Warrant in the Warrant register except in connection with the
exchange, assignment or transfer of the Unit in which such Warrant is included.
On and after the Separation Date and the issuance of Warrant Certificates
pursuant to Section 2.7 hereof, Warrant Certificates, subject to the provisions
of section 8.2, may be split up, combined or exchanged for other Warrant
Certificates representing a like aggregate number of Warrants, or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates on and after the
Separation Date shall make such request in writing delivered to the Warrant
Agent at its Corporate Office and shall surrender the Warrant Certificate or
Warrant Certificates so to be split up, combined or exchanged at said office.
Subject to any applicable laws, rules or regulations restricting
transferability, any restriction on transferability that may appear on a Warrant
Certificate in accordance with the terms hereof, or any "stop-transfer"
instructions the Company may give to the Warrant Agent to implement any such
restrictions (which instructions the Company is expressly authorized to give),
transfer of outstanding Warrant Certificates may be effected by the Warrant
Agent from time to time on and after the Separation Date upon the books of the
Company to be maintained by the Warrant Agent for that purpose, upon a surrender
of the Warrant Certificate to the Warrant Agent at its Corporate Office, with
the assignment form set forth in the Warrant Certificate duly executed and with
Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent may require the holder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.
(c) Common Stock Certificates. Prior to the Separation Date,
Common Stock Certificates may not be divided or combined with other Common Stock
Certificates or exchanged, assigned or transferred except as part of the Unit in
which such Common Stock is included, and the Transfer Agent will not record an
exchange, assignment or transfer of shares of Common Stock in the Common Stock
Register except in connection with the exchange, assignment or transfer of the
Unit in which such Common Stock is included.
8.2. Cancellation of Unit Certificates and Warrant Certificates. Any
Unit Certificate or Warrant Certificate surrendered for split up, combination,
exchange or transfer, or purchased or otherwise acquired by the Company or, in
the case of Warrant Certificates, surrendered upon exercise of Warrants, shall
be cancelled and shall not be reissued by the Company; and, except as provided
(i) in Section 3.5, in case of the exercise of less than all of the Warrants
evidenced by a Warrant Certificate, or (ii) in Section 8.1, in case of a split
up, combination, exchange or transfer of the Units evidenced by a Unit
Certificate or Warrants evidenced by a Warrant Certificate, no Unit Certificate
or Warrant Certificate shall be issued hereunder in lieu of such canceled Unit
Certificate or Warrant Certificate. Any Unit Certificate
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<PAGE> 21
or Warrant Certificate so cancelled shall be destroyed by the Unit Agent or
Warrant Agent, as the case may be, unless otherwise directed in writing by the
Company.
8.3. Agreement of Unit Certificate and Warrant Certificate Holders.
Every holder of a Unit Certificate and/or Warrant Certificate by accepting the
same consents and agrees with the Company and the Unit Agent and Warrant Agent
and with every other holder of a Unit Certificate and/or Warrant Certificate
that:
(a) transfer of the Unit Certificates and the Warrant
Certificates shall be registered on the books of the Company maintained for that
purpose by the Unit Agent and Warrant Agent only if surrendered at the Corporate
Office of the Unit Agent or Warrant Agent, as the case may be, duly endorsed or
accompanied by a proper instrument of transfer, with Signatures Guaranteed; and
(b) prior to due presentment for registration of transfer of a
Unit Certificate or a Warrant Certificate, the Company and the Unit Agent or the
Warrant Agent, as the case may be, may deem and treat the person in whose name
the Unit Certificate or Warrant Certificate is registered as the absolute owner
thereof and of the securities evidenced thereby (notwithstanding any notations
of ownership or writing on the Unit Certificates or Warrant Certificates made by
anyone other than the Company, the Unit Agent or the Warrant Agent) for the
purpose of any exercise thereof and for all other purposes, and neither the
Company, the Unit Agent nor the Warrant Agent shall be affected by any notice to
the contrary.
ARTICLE IX
PROVISIONS CONCERNING THE UNIT AGENT
AND THE WARRANT AGENT AND OTHER MATTERS
9.1. Payment of Taxes and Charges. The Company will from time to time
promptly pay to the Unit Agent and the Warrant Agent, or make provisions
satisfactory to the Unit Agent and the Warrant Agent for the payment of, all
taxes and charges that may be imposed by the United States or any state upon the
Company or the Unit Agent or the Warrant Agent in connection with the issuance
or delivery of (i) shares of Common Stock and Warrants upon surrender of the
Unit Certificates on and after the Separation Date pursuant to Section 2.7 and
(ii) shares of any Common Stock upon the exercise of any Warrants, but any
transfer taxes in connection with the issuance of Unit Certificates or Warrant
Certificates or Common Stock Certificates in any name other than that of the
registered holder of the Unit Certificate or Warrant Certificate surrendered
shall be paid by such registered holder; and, in such case, the Company shall
not be required to issue or deliver any Unit Certificate or Warrant Certificate
or Common Stock Certificate until such taxes shall have been paid or it has been
established to the Company's satisfaction that no tax is due.
9.2. Resignation or Removal of Unit Agent or Warrant Agent. The Unit
Agent or Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder after giving 30 days' notice in writing to the
Company, except that such shorter notice may be given as the Company shall, in
writing, accept as sufficient. Upon comparable notice to
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<PAGE> 22
the Unit Agent or Warrant Agent, the Company may remove the Unit Agent or
Warrant Agent; provided, however, that in such event the Company shall appoint a
new Unit Agent or Warrant Agent, as hereinafter provided, and the removal of the
Unit Agent or Warrant Agent shall not be effective until a new Unit Agent or
Warrant Agent has been appointed and has accepted such appointment. If the
office of the Unit Agent or Warrant Agent becomes vacant by resignation or
incapacity to act or otherwise, the Company shall appoint in writing a new Unit
Agent or Warrant Agent, as the case may be. 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 or incapacity by the resigning or incapacitated Unit
Agent or Warrant Agent or by the registered holder of any Unit Certificate or
Warrant Certificate, then the registered holder of any Unit Certificate or
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Unit Agent or Warrant Agent, as the case may be. Any
successor Unit Agent or Warrant Agent, whether appointed by the Company or any
such court, shall be a registered transfer agent, bank or trust company in good
standing and incorporated under the United States banking laws or under the laws
of any state within the United States, having its Corporate Office within the
United States. Any new Unit Agent or Warrant Agent appointed hereunder shall
execute, acknowledge and deliver to the former Unit Agent or Warrant Agent last
in office and to the Company an instrument accepting such appointment under
substantially the same terms and conditions as are contained herein and
thereupon such new Unit Agent or Warrant Agent, without any further act or deed,
shall become vested with the rights, powers, duties and responsibilities of the
Unit Agent or Warrant Agent and the former Unit Agent or Warrant Agent shall
cease to be the Unit Agent or Warrant Agent, as the case may be; but if for any
reason it becomes necessary or expedient to have the former Unit Agent or
Warrant Agent 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 former Unit Agent or Warrant Agent
promptly following the request therefor.
9.3. Notice of Appointment. Not later than the effective date of the
appointment of a new Unit Agent or Warrant Agent, the Company shall cause notice
thereof to be mailed to the former Unit Agent or Warrant Agent and the Transfer
Agent, and shall forthwith cause a copy of such notice to be mailed to each
registered holder of a Unit Certificate or Warrant Certificate. Failure to mail
such notice, or any defect contained therein, shall not affect the legality or
validity of the appointment of the successor Unit Agent or Warrant Agent.
9.4. Merger of Unit Agent or Warrant Agent. Any company into which the
Unit Agent or the Warrant Agent may be merged or with which it may be
consolidated, or any company resulting from any merger or consolidation to which
the Unit Agent or the Warrant Agent shall be a party, shall be the successor
Unit Agent or the Warrant Agent under this Agreement without further act,
provided that such company would be eligible for appointment as a successor Unit
Agent or Warrant Agent under the provisions of Section 9.2 hereof. Any such
successor Unit Agent or Warrant Agent may adopt the prior countersignature of
any predecessor Unit Agent or Warrant Agent and distribute Unit Certificates or
Warrant Certificates countersigned but not distributed by such predecessor Unit
Agent or Warrant Agent, or may countersign the Unit Certificates or Warrant
Certificates in its own name.
9.5. Company Responsibilities. The Company agrees that it shall (i) pay
the Unit Agent and the Warrant Agent reasonable remuneration for its services as
the Unit Agent
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and the Warrant Agent hereunder in accordance with the fee schedule provided
concurrently herewith to the Company and will reimburse the Unit Agent and the
Warrant Agent upon demand for all expenses, advances and expenditures that the
Unit Agent and the Warrant Agent may reasonably incur in the execution of its
duties hereunder (including reasonable fees and expenses of its counsel), (ii)
provide the Warrant Agent, upon request, with sufficient funds to pay any cash
due in lieu of fractional shares pursuant to Section 5.1(e) upon exercise of
Warrants and (iii) perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all further and other acts,
instruments and assurances as may reasonably be required by the Unit Agent or
the Warrant Agent for the carrying out or performing by the Unit Agent or the
Warrant Agent of the provisions of this Agreement.
9.6. Certification for the Benefit of Unit Agent or Warrant Agent.
Whenever in the performance of its duties under this Agreement the Unit Agent or
the Warrant Agent shall deem it necessary or desirable that any matter be proved
or established or that any instructions with respect to the performance of its
duties hereunder be given by the Company prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and
established, or such instructions may be given, by a certificate or instrument
signed by the Chairman, the Chief Executive Officer, the President, a Vice
President, the Secretary or the Treasurer of the Company and delivered to the
Unit Agent or the Warrant Agent. Such certificate or instrument may be relied
upon by the Unit Agent or the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement; but in its discretion
the Unit Agent or the Warrant Agent may in lieu thereof accept other evidence of
such matter or may require such further or additional evidence as it may deem
reasonable.
9.7. Books and Records. The Unit Agent and the Warrant Agent shall
maintain the Company's books and records for registration of holders and
registration of transfer of the Unit Certificates and the Warrant Certificates
issued hereunder. Such books and records shall show the names and addresses of
the respective holders of the Unit Certificates and the Warrant Certificates,
the number of shares of Common Stock and the Warrants evidenced on its face by
each Unit Certificate and, in the case of Warrants, each Warrant Certificate and
the date of each Unit Certificate and Warrant Certificate.
9.8. Liability of Unit Agent and Warrant Agent. The Unit Agent and the
Warrant Agent shall be liable hereunder for its own negligence or willful
misconduct. The Unit Agent and the Warrant Agent shall act hereunder solely as
an agent for the Company and its duties shall be determined solely by the
provisions hereof. Neither the Unit Agent nor the Warrant Agent shall be liable
for or by reason of any of the statements of fact or recitals contained in this
Agreement or in the Unit Certificates or the Warrant Certificates (except its
respective countersignature thereof) or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been made by the
Company only. Neither the Unit Agent nor the Warrant Agent will incur any
liability or responsibility to the Company or to any holder of any Unit
Certificate or Warrant Certificate for any action taken, or any failure to take
action, in reliance on any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by the
Unit Agent or the Warrant Agent to be genuine and to have been signed, sent or
presented by the proper party or parties. Neither the Unit Agent nor the Warrant
Agent shall be under any responsibility in respect of the validity of
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<PAGE> 24
this Agreement or the execution and delivery hereof by the Company or in respect
of the validity or execution of any Unit Certificate or Warrant Certificate
(except its respective countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Unit Certificate or Warrant Certificate; nor shall it be
responsible for the making of any adjustment required under the provisions of
Article V hereof or responsible for the manner, method or amount of any such
adjustment or the facts that would require any such adjustment; nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or other securities
to be issued pursuant to this Agreement or any Unit Certificate or Warrant
Certificate or as to whether any shares of Common Stock or other securities
will, when issued, be validly authorized and issued and fully paid and
nonassessable.
9.9. Use of Attorneys, Agents and Employees. The Unit Agent and the
Warrant Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself or by or through its duly
authorized attorneys, agents or employees.
9.10. Indemnification. The Company agrees to indemnify the Unit Agent
and the Warrant Agent and save each of them harmless against any and all losses,
expenses or liabilities, including judgments, costs and reasonable counsel fees
arising out of or in connection with its respective agency under this Agreement,
except as a result of the negligence or willful misconduct of the Unit Agent or
the Warrant Agent, as the case may be.
9.11. Acceptance of Agency. Each of the Unit Agent and the Warrant
Agent hereby accepts the agency established by this Agreement and agrees to
perform the same upon the terms and conditions herein set forth.
9.12. Changes to Agreement. The Unit Agent and the Warrant Agent may,
without the consent or concurrence of any registered holder of a Unit
Certificate or Warrant Certificate, by supplemental agreement or otherwise, join
with the Company in making any changes or corrections in this Agreement that
they shall have been advised by counsel (i) are required to cure any ambiguity
or to correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, (ii) add to the covenants and
agreements of the Company or the Unit Agent or the Warrant Agent in this
Agreement such further covenants and agreements thereafter to be observed or
(iii) result in the surrender of any right or power reserved to or conferred
upon the Company, the Unit Agent or the Warrant Agent in this Agreement, but
which changes or corrections do not or will not adversely affect, alter or
change the rights, privileges or immunities of the registered holders of Unit
Certificates or 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 holders of Warrant Certificates representing
not less than 50% of the Warrants then outstanding (or, if prior to the
Separation Date, the registered holders of Unit Certificates representing not
less than 50% of the Units then outstanding); and provided further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or increase the Applicable Exercise Price therefor, or the
acceleration of the Exercise Deadline shall be made without the consent in
writing of the registered holder of the Warrant Certificate representing such
Warrant (or, if prior to the Separation Date, the holder of the Unit Certificate
representing such Warrant), other than
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such changes as are specifically prescribed by this Agreement as originally
executed or are made in compliance with applicable law.
9.13. Assignment. All the covenants and provisions of this Agreement by
or for the benefit of the Company, the Unit Agent or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns.
9.14. Successor to Company. The Company will not merge or consolidate
with or into any other corporation unless the corporation resulting from such
merger or consolidation (if not the Company) shall expressly assume, by
supplemental agreement reasonably satisfactory in form and substance to the Unit
Agent and the Warrant Agent and delivered to the Unit Agent and the Warrant
Agent, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company. A sale of all or substantially all of the assets of the Company for a
consideration (apart from assumption of obligations) consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing purposes.
9.15. Notices. Any notice or demand required by this Agreement to be
given or made by the Unit Agent or the Warrant Agent or by the registered holder
of any Unit Certificate or Warrant Certificate to or on the Company shall be
sufficiently given or made if sent by first-class or registered mail, postage
prepaid, addressed (until another address is filed in writing with the Unit
Agent and the Warrant Agent by the Company) to the Company as follows:
Anthra Pharmaceuticals, Inc.
103 Carnegie Center
Suite 102
Princeton, New Jersey 08540
Attention: President
with a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Any notice or demand required by this Agreement to be given or made by the
registered holder of any Unit Certificate or Warrant Certificate or by the
Company to or on the Unit Agent, the Warrant Agent or the Transfer Agent shall
be sufficiently given or made if sent by first-class or registered mail, postage
prepaid, addressed (until another address is filed in writing with the Company
by the Unit Agent, the Warrant Agent or the Transfer Agent), as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York, NY 10005
Attention: Executive Vice President
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<PAGE> 26
Any notice or demand required by this Agreement to be given or made by the
Company, the Unit Agent, the Warrant Agent or the Transfer Agent to or on the
registered holder of any Unit Certificate or Warrant Certificate shall be
sufficiently given or made, whether or not such holder receives the notice, if
sent by first-class or registered mail, postage prepaid, addressed to such
registered holder at the last address of such holder as shown on the books of
the Company maintained by the Unit Agent, the Warrant Agent or the Transfer
Agent. Otherwise such notice or demand shall be deemed given when received by
the party entitled thereto.
9.16. Defects in Notice. Failure to file any certificate or notice or
to mail any notice, or any defect in any certificate or notice pursuant to this
Agreement, shall not affect in any way the rights of any registered holder of a
Unit Certificate or Warrant Certificate or the legality or validity of any
adjustment made pursuant to Article V hereof, or any transaction giving rise to
any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
9.17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflicts of laws.
9.18. Standing. Nothing in this Agreement expressed and nothing that
may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, the Unit Agent, the Warrant Agent, the Transfer Agent and the
registered holders of the Unit Certificates and the Warrant Certificates any
right, remedy or claim under or by reason of this Agreement or of any covenant,
condition, stipulation, promise or agreement contained herein; and all
covenants, conditions, stipulations, promises and agreements contained in this
Agreement shall be for the sole and exclusive benefit of the Company, the Unit
Agent, the Warrant Agent and the Transfer Agent and their respective successors
and assigns, and the registered holders of Unit Certificates and Warrant
Certificates.
9.19. Headings. The descriptive headings of the articles and sections
of this Agreement are inserted for convenience of reference only and shall not
control or affect the meaning or construction of any of the provisions hereof.
9.20. Counterparts. This Agreement may be executed in counterparts,
each of which so executed shall be deemed to be an original and both of which
shall together constitute but one and the same instrument.
9.21. Conflict of Interest. The Unit Agent and the Warrant Agent and
any shareholder, director, officer or employee of the Unit Agent and the Warrant
Agent may buy, sell or deal in any of the Unit Certificates or the Warrant
Certificates or other securities of the Company, may be pecuniarily interested
in any transaction in which the Company may be interested, or may contract with
or lend money to the Company or otherwise act as fully and freely as though the
Unit Agent or the Warrant Agent were not Unit Agent or Warrant Agent under this
Agreement. Nothing herein shall preclude the Unit Agent or the Warrant Agent
from acting in any other capacity for the Company, including, without
limitation, as trustee under any
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indenture or as transfer agent for the Units, Common Stock or any other
securities of the Company, or for any other legal entity.
9.22. Availability of the Agreement. The Unit Agent and the Warrant
Agent shall keep copies of this Agreement available for inspection by holders of
Units, Unit Certificates, Warrants and Warrant Certificates during normal
business hours at its Corporate Office. Copies of this Agreement may be obtained
without charge upon written request to the Company at its address set forth in
Section 9.15.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
ANTHRA PHARMACEUTICALS, INC.
By:
--------------------------------------
Name: Michael C. Walker
Title: President
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Unit Agent, Warrant Agent
and Transfer Agent
By:
--------------------------------------
Name:
Title:
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Exhibit A
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Unit Agent
By: ____________________________________
Authorized Signature
NUMBER UNITS
ANTHRA PHARMACEUTICALS, INC.
Incorporated under the Laws of the State of Delaware
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP________________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
(the "Registered Holder") is the owner of the number of fully-paid and
non-assessable Units specified above, transferable only by the Registered Holder
thereof in person or by his or her duly authorized attorney, on surrender of
this Unit Certificate properly endorsed.
Each Unit consists of one share of common stock, par value $.01 per
share (the "Common Stock"), of Anthra Pharmaceuticals, Inc. ("Anthra" or the
"Company") and one Class A redeemable Common Stock purchase warrant (the
"Warrant"), each Warrant entitling the holder thereof to purchase one share of
Common Stock at an exercise price of $6.00 per share, subject to adjustment in
certain events, exercisable at any time during the period beginning on
__________ __, 1999 or on such earlier date as determined by the Underwriter
(the "Separation Date") and ending on __________ __, 2003 (unless earlier
redeemed). The terms of this Unit and the Warrants are governed by a Unit and
Warrant Agreement, dated as of September __, 1998 (the "Unit and Warrant
Agreement"), between the Company and American Stock Transfer & Trust Company, as
Unit Agent, Warrant Agent and Transfer Agent, and are subject to the terms and
provisions contained therein. The Registered Holder of this Unit Certificate
consents to all of the terms and provisions contained in the Unit and Warrant
Agreement by acceptance hereof. Copies of the Unit and Warrant Agreement are on
file at the office of the Unit Agent at 40 Wall Street, New York, New York,
10005, and are available to any holder on written request without cost.
This certificate is not valid unless countersigned and registered by
the Unit Agent.
The Warrants and shares of Common Stock of the Company represented by
this Unit Certificate shall not be separately transferable until the Separation
Date. On and after the Separation Date, the Registered Holder of this Unit
Certificate may surrender it to the Unit Agent at its Corporate Office specified
in the Unit and Warrant Agreement in exchange for the Warrants and shares of
Common Stock represented hereby. The Units represented by this Unit Certificate
shall not be transferable on and subsequent to the Separation Date. On and
subsequent to the Separation Date, the Warrants and the shares of Common Stock
represented by this Unit Certificate may only be separately transferred.
IN WITNESS WHEREOF, the Company has caused this Unit Certificate to be
duly executed, manually or by facsimile, by two of its officers thereunto duly
authorized and a facsimile of the corporate seal to be imprinted hereon.
Dated: ______________________________ ANTHRA PHARMACEUTICALS, INC.
[CORPORATE SEAL] By: ____________________________________
Chief Executive Officer
By: ____________________________________
Treasurer
<PAGE> 29
[BACK]
ANTHRA PHARMACEUTICALS, INC.
This certificate certifies that for value received the Registered
Holder hereby is entitled, at any time commencing on the Separation Date, to
exchange each Unit represented by this Unit Certificate for Common Stock
Certificates representing one share of Common Stock for each Unit represented by
this Unit Certificate and Warrant Certificates representing one Warrant for each
Unit represented by this Unit Certificate upon surrender of this Unit
Certificate to the Unit Agent at its Corporate Office specified in the Unit and
Warrant Agreement together with any documentation required by such Unit Agent.
REFERENCE IS MADE TO THE UNIT AND WARRANT AGREEMENT REFERRED TO ON THE
FRONT SIDE HEREOF AND THE PROVISIONS OF SUCH UNIT AND WARRANT AGREEMENT SHALL
FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THIS
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________ Custodian
TEN ENT - as tenants by the entirety (Cust)
JT TEN - as joint tenants with right _______________
of survivorship and not as (Minor)
tenants in common
COM PROP - as community property under Uniform Gifts to Minors
Act
_______________
(State)
UNIF TRF MIN ACT - _______________ Custodian
(Cust)
_______________
(Minor)
under Uniform Transfers to
Minors Act
________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE> 30
[BACK CONTINUED]
For Value Received, _________________________________ 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 ZIP CODE OR ASSIGNEE)
Units represented by the within Certificate, and do(es) hereby irrevocably
constitute and appoint
Attorney to transfer the said Unit(s) on the books of the within named Company
with full power of substitution in the premises.
Dated:__________________________
NOTICE:_____________________________________
THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
IMPORTANT: ALL SIGNATURES MUST BE GUARANTEED IN THE SPACE PROVIDED
BELOW BY A FIRM THAT IS A MEMBER OF A NATIONAL SECURITIES
EXCHANGE OR OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
LOCATED IN THE UNITED STATES OR BY ANY OTHER ELIGIBLE
GUARANTOR INSTITUTION WHICH IS A PARTICIPANT IN A
SIGNATURE GUARANTEE PROGRAM (AS SUCH TERMS ARE DEFINED IN
REG. 240.17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED), ACCEPTABLE TO THE UNIT AGENT.
SIGNATURE GUARANTEE
Name:
(Please Print)
By:
Title:
<PAGE> 31
Exhibit B
[FORM OF WARRANT CERTIFICATE]
No. ____
Certificate for ___ Warrants
NOT EXERCISABLE BEFORE 9:30 A.M., NEW YORK CITY TIME, ON
__________ __, 1999 OR ON SUCH EARLIER DATE WITH THE PRIOR
WRITTEN CONSENT OF THE UNDERWRITER OR AFTER 5:00 P.M., NEW YORK
CITY TIME, ON __________ __, 2004, SUBJECT TO EARLIER REDEMPTION
AS DESCRIBED HEREIN
ANTHRA PHARMACEUTICALS, INC.
CLASS A COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES THAT, FOR VALUE RECEIVED:__________________
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above. Each Warrant initially entitles the holder
to purchase, subject to the terms and conditions set forth in this Warrant
Certificate and the Unit and Warrant Agreement, dated as of September __, 1998,
among the Company (as defined below) and American Stock Transfer & Trust
Company, as Unit Agent, Warrant Agent and Transfer Agent (the "Unit and Warrant
Agreement"), one fully paid and nonassessable share of common stock, par value
$.01 per share (the "Common Stock"), of Anthra Pharmaceuticals, Inc., a Delaware
corporation ("Anthra" or the "Company"), at an initial exercise price (the
"Exercise Price") of $6.00 per share, subject to adjustment pursuant to the Unit
and Warrant Agreement. This Warrant may be exercised at any time between
__________ __, 1999 or on such earlier date as determined by the Underwriter
(the "Separation Date") and the Exercise Deadline (as hereinafter defined), by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon duly executed, at the office maintained for that purpose pursuant
to the Unit and Warrant Agreement by American Stock Transfer & Trust Company, or
its successor as warrant agent (any such warrant agent being herein called the
"Warrant Agent"), and by paying in full the applicable exercise price for the
Common Stock being acquired (the "Applicable Exercise Price"), plus transfer
taxes, if any. Payment of the Applicable Exercise Price shall be made in United
States currency, by certified check or money order payable to the order of the
Company.
The Warrants are subject to redemption by the Company upon 30
days' prior notice at a redemption price of $.10 per Warrant (the "Redemption
Price"), at any time on or after the fifteenth month following the date of the
prospectus filed as part of the Registration Statement (as defined in the Unit
and Warrant Agreement), provided that (i) the last sales price of the Common
Stock as reported by the American Stock Exchange (or such exchange on which the
Common Stock is then traded) for 20 consecutive trading days ending within ten
days of the date of the notice of redemption is at least $9.00 and (ii) there is
a current registration statement covering the resale of the underlying shares
B-1
<PAGE> 32
of Common Stock. Notice of such redemption (the "Redemption Notice") must be
given by the Company to the Warrant Agent pursuant to Section 5.6 of the Unit
and Warrant Agreement no later than 15 days following the end of such 20-day
period.
No Warrant may be exercised prior to the Separation Date or
after 5:00 p.m., New York City time, on the earlier to occur of (i) __________
__, 2003 or (ii) the business day immediately preceding the date established for
redemption in the Redemption Notice (the "Exercise Deadline"). All Warrants
evidenced hereby shall thereafter become void.
On and after the Separation Date and prior to the Exercise
Deadline, subject to any applicable laws, rules or regulations restricting
transferability and to any restriction on transferability that may appear on
this Warrant Certificate in accordance with the terms of the Unit and Warrant
Agreement, the Registered Holder shall be entitled to transfer this Warrant
Certificate, in whole or in part, upon surrender of this Warrant Certificate at
the office of the Warrant Agent maintained for that purpose with the form of
assignment set forth hereon duly executed, with a medallion or other acceptable
signature guarantee by a member firm of a national securities exchange, a
commercial bank or a trust company located in the United States or a member of
the National Association of Securities Dealers, Inc., or other eligible
guarantor institution which is a participant in a medallion signature guarantee
program or a signature guarantee program (as such terms are defined in Reg.
240.17Ad-15 under the Securities Exchange Act of 1934, as amended) acceptable to
the Warrant Agent. Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrants will be issued
in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced
by this Warrant Certificate, there shall be issued to the Registered Holder a
new Warrant Certificate in respect of the Warrants not exercised.
Prior to the Exercise Deadline, the Registered Holder shall be
entitled to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates of the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
Upon certain events provided for in the Unit and Warrant
Agreement, the Applicable Exercise Price, the number of shares of Common Stock
issuable upon the exercise of each Warrant and the Redemption Trigger Price are
required to be adjusted.
No fractional shares will be issued upon the exercise of
Warrants. As to any fraction of a share which the registered holder of one or
more Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Unit and
Warrant Agreement.
This Warrant Certificate is issued under and in accordance
with the Unit and Warrant Agreement and is subject to the terms and provisions
contained in said Unit and Warrant Agreement, to all of which terms and
provisions the Registered Holder consents by acceptance hereof.
B-2
<PAGE> 33
This Warrant Certificate shall not entitle the Registered
Holder to any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of stockholders or any other
proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose
unless and until it shall have been countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its facsimile Corporate Seal.
ANTHRA PHARMACEUTICALS, INC.
By: ________________________________
Name:
Title:
Seal Attest:
Countersigned AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
Dated:___________________ By: ________________________________
Name:
Title:
B-3
<PAGE> 34
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise ____ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
_______________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
_______________________________________________________________________
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
_____________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all
the Warrants represented by this Warrant Certificate, the undersigned requests
that a new Warrant Certificate representing the number of full Warrants not
exercised be issued and delivered as set forth above.
In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $______ by certified check or money order payable in United States
currency to the order of the Company for the number of Shares of Common Stock
for which the Warrant in being exercised.
Dated:___________________
________________________________ _______________________________
(Insert Social Security or other (Signature of registered holder)
identifying number(s) of holder(s))
______________________________
(Signature of registered holder,
if co-owned)
NOTE: Signature must conform in all
respects to name of holder as specified on
the face of the Warrant Certificate
Signature Guaranteed:
____________________________
<PAGE> 35
[FORM OF WARRANT ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:
Name of Assignee Address No. of Warrants
and does hereby irrevocably constitute and appoint ___________________ to make
such transfer on the books of Anthra Pharmaceuticals, Inc. maintained for that
purpose, with full power of substitution in the premises.
Dated:___________________, 19__
_______________________________ ________________________________
(Insert Social Security or other (Signature of Assignee)
identifying number(s) of holder(s))
________________________________
(Signature of Assignee,
if co-owned)
NOTE: Signature must conform in all
respects with the name of the
holder as specified on the face of
the Warrant Certificate.
Signature(s) Guaranteed:
__________________________
<PAGE> 1
Exhibit 4.5
ANTHRA PHARMACEUTICALS, INC.
AND
JANSSEN/MEYERS ASSOCIATES, L.P.
UNDERWRITER'S OPTION AGREEMENT FOR UNITS
DATED AS OF ______________, 1998
<PAGE> 2
UNDERWRITER'S OPTION AGREEMENT FOR UNITS dated as of _______________, 1998
among ANTHRA PHARMACEUTICALS, INC., a Delaware corporation (the "Company") and
JANSSEN/MEYERS ASSOCIATES, L.P., the underwriter, a Delaware corporation
(hereinafter referred to variously as the "Holder" or the "Underwriter").
W I T N E S S E T H :
WHEREAS, the Underwriter has agreed pursuant to the underwriting agreement
(the "Underwriting Agreement") dated as of the date hereof between the
Underwriter and the Company, to underwrite, on a firm commitment basis, the
Company's proposed public offering ("Public Offering") of 2,000,000 Units at a
public offering price of $5.00 per Unit, each Unit consisting of one (1) share
of the Company's common stock par value $___ per share ("Common Stock") and one
(1) Class A Redeemable Common Stock Purchase Warrant ("Public Warrant"); and
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Underwriter's Unit Option Warrant") to purchase up to an aggregate of 200,000
Units (the "UW Units") of the Company at a purchase price of $.001 per Unit
Option Warrant, (exercisable at 140% of the public offering price); and
<PAGE> 3
WHEREAS, the UW Units shall be substantially the same as the Public Units
and shall entitle the Underwriter to purchase (i) one share of Common Stock
("Unit Share") and (ii) one Class A Redeemable Warrant ("Unit Warrant"); and
WHEREAS, the Underwriter's Unit Option Warrant 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 Underwriter in consideration
for, and as part of the compensation in connection with the Public Offering;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate of Two Hundred Dollars ($200.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
l. Grant. The Holder is hereby granted the right to purchase, at any time
from 1999 [one year from the Effective Date] until 5:30 P.M., New York time,
on ,2003, up to an aggregate of 200,000 UW Units at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of 140% of the Public
Offering Price (the "Exercise Price").
2. Underwriter's Unit Option Warrant Certificates. The Underwriter's
warrant certificates (the "Underwriter's Unit Option Warrant Certificates")
delivered and to be delivered pursuant to
2
<PAGE> 4
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 Underwriter's Unit Option Warrants. The Underwriter's Unit
Option Warrants initially are exercisable at an aggregate initial exercise price
(subject to adjustment as provided in Section 8 hereof) per Unit, as set forth
in Section 6 hereof payable by certified or official bank check in New York
Clearing House funds, subject to adjustment as provided in Section 8 hereof.
Upon surrender at the Company's principal offices in New Jersey (presently
located at 102 Carnegie Center, Suite 107, Princeton, New Jersey 08540), of an
Underwriter's Unit Option Warrant with the annexed Form of Election to Purchase
duly executed, together with payment of the Purchase Price (as hereinafter
defined) for the UW Units purchased, the registered holder of an Underwriter's
Unit Option Warrant ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the UW Units so purchased. The purchase rights
represented by each Underwriter's Unit Option Warrant are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of Common Stock underlying the Underwriter's UW Units). In the case of
the purchase of less than all the UW Units purchasable under any
3
<PAGE> 5
Underwriter's Unit Option Warrant, the Company shall cancel the Underwriter's
Unit Option Warrant upon the surrender thereof and shall execute and deliver a
new Underwriter's Unit Option Warrant of like tenor for the balance of the UW
Units purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Underwriter's Unit
Option Warrant, the issuance of certificates for the Unit Warrants and Unit
Shares or other securities, properties or rights underlying such Underwriter's
Unit Option Warrant, shall be made forthwith (and in any event within five (5)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which 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
Underwriter 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.
4
<PAGE> 6
The Underwriter's Unit Option Warrants and the certificates representing
the Unit Warrants and Unit Shares issuable upon exercise of the Underwriter's
Unit Option Warrant shall be executed on behalf of the Company by the manual or
facsimile signature of the 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. The Underwriter's Unit
Option Warrants shall be dated the date of the execution by the Company upon
initial issuance, division, exchange, substitution or transfer. The certificates
representing the Unit Warrants and Unit Shares issuable upon exercise of the
Underwriter's Unit Option Warrants shall be identical in form to those issued in
connection with the Public Offering.
5. Restriction On Transfer of Underwriter's Unit Option Warrant. The
Holder of a Underwriter's Unit Option Warrant, by its acceptance thereof,
covenants and agrees that the Underwriter's Unit Option Warrant are being
acquired as an investment and not with a view to the distribution thereof; and
that the Underwriter's Unit Option Warrant may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
5
<PAGE> 7
period of one (1) year from the date hereof, except to officers of the
Underwriter or members of the Selling Group.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Underwriter's
Warrant shall be $7.00 per Share. The exercise price shall be adjusted from time
to time in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise prices or the adjusted exercise price, depending upon the
context of the Underwriter's Unit Option Warrant.
7. Registration Rights.
Section 7.1 Demand Registration Under the Securities Act of 1933.
At any time commencing after ______________ , 1999 [one (1) year from the
Effective Date] through and including ______________, 2003 (five (5) years from
the Effective Date), the Holders of the Underwriter's Unit Option Warrant, Unit
Warrants and Unit Shares, representing a "Majority" of the shares of Common
Stock issuable upon the exercise of the Underwriter's UW Units (assuming the
exercise of all of the Underwriter's Unit Option Warrant) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to
6
<PAGE> 8
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 Underwriter and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Unit Warrants and Unit Shares during a period equal to the longer of:
(i) nine (9) months or (ii) the unexpired term of the Unit Warrants by such
Holders and any other Holders of the Underwriter's Unit Option Warrant, UW Units
and the Units who shall notify the Company within ten (10) days after receiving
notice from the Company of such request.
Section 7.2 Piggyback Registration. If, at any time commencing after
________________ , 1999, through and including ____________ , 2003 (five (5)
years from the Effective Date), the Company proposes to register any of its
securities under the Act (other than in connection with a merger or pursuant to
Form S-8 or similar form) it will give written notice by registered or certified
mail, at least thirty (30) days prior to the filing of each such registration
statement, to the Underwriter and to all other Holders of the Underwriter's Unit
Option Warrant, UW Units and Units underlying the Underwriter's UW Units, of its
intention to do so. If any of the Underwriters or other Holders of the
Underwriter's
7
<PAGE> 9
Unit Option Warrant, Unit Warrants or Unit Shares underlying the Underwriter's
Unit Option Warrant, notify the Company within twenty (20) 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
Underwriter and such Holders of the Underwriter's Unit Option Warrant, UW Units
and/or Units underlying the Underwriter's Unit Option Warrant, the opportunity
to have any of such securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the Effective Date thereof.
(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 the Underwriter's Unit Option Warrant, UW Units and
Units within ten (10) days from the date of the receipt of any such registration
request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for
8
<PAGE> 10
the Units, UW Units and Underwriter's Unit Option Warrant within the time period
specified in Section 7.4(a) hereof pursuant to the written notice specified in
Section 7.3(a) of a Majority of the Holders of the Underwriter's Unit Option
Warrant and Units, the Company agrees that upon the written notice of election
of a Majority of the Holders of the Underwriter's Unit Option Warrant, UW Units
and Units, it shall repurchase (i) any and all of the UW Units and the Units
underlying previously exercised Underwriter's Unit Option Warrant at the higher
of the Market Price (as defined in Section 8.1(a)) per share of Common Stock on
(x) the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration
of the period specified in Section 7.4(a) and (ii) any and all Underwriter's
Unit Option Warrant at the Market Price per share of Common Stock (as of the
date determined in the manner set forth in the foregoing clause (i)) less the
exercise price of such Underwriter's Unit Option Warrant and UW Units. Such
repurchase shall be in immediately available funds and shall close within ten
(10) days after the later of (i) the delivery of the written notice of election
specified in this Section 7.3(d) and (ii) the receipt by the Company of all
necessary consents or approvals of governments or third parties to such
repurchase.
9
<PAGE> 11
Section 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 forty-five (45) days of receipt of any demand therefor in
accordance with Section 7.1, shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell the Units underlying the Underwriter's Unit Option
Warrant and UW Units such number of prospectuses as shall reasonably be
requested. Notwithstanding the foregoing sentence, the Company shall be entitled
to postpone the filing of any registration statement otherwise required to be
prepared and filed by it pursuant to this Section 7.4(a) if (i) the Company is
under contract or other binding legal obligation for a material acquisition,
reorganization or divestiture, or (ii) the Company is publicly committed to a
self-tender or exchange offer and the filing of a registration statement would
cause a violation of Rule 10b-6 under the Securities Exchange Act of 1934. In
the event of such postponement, the Company shall be required to file the
registration statement pursuant to this Section 7.4(a) upon the earlier of (i)
the consummation or termination, as applicable, of
10
<PAGE> 12
the event requiring such postponement or (ii) 90 days after the receipt of the
initial demand for such registration.
(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) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental, special and consequential damages and damages
due to loss of profit sustained by the Holder(s) requesting registration of
their Underwriter's Unit Option Warrant, UW Units and Units underlying the
Underwriter's Unit Option Warrant.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Underwriter's Unit Option Warrant, UW Units and
Units underlying the Underwriter's Unit Option Warrant 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
11
<PAGE> 13
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 the Holder(s) of the Underwriter's Unit
Option Warrant, UW Units and Units to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("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 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 pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Underwriter's Unit Option Warrant, UW Units and
Units underlying the Underwriter's Unit Option Warrant to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage
12
<PAGE> 14
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify
the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Underwriter's Unit Option Warrant or the UW
Units prior to the initial filing of any registration statement or the
effectiveness thereof.
(g) If the Underwriters' Warrants, UW Units and Units underlying the UW
Units are to be sold in an underwritten public offering, the Company shall use
its best efforts to furnish to each Holder participating in the offering and to
each such underwriter, a signed counterpart, addressed to such underwriter, of
(i) an opinion of counsel to the Company dated the date of the closing under the
underwriting agreement, and (ii) a "cold comfort" 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
13
<PAGE> 15
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.
(h) The Company shall as soon as practicable after the Effective Date of
the registration statement, and in any event within 15 months thereafter, have
made "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the Effective Date of the registration statement.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below, and 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
14
<PAGE> 16
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules 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 shall reasonably request.
(j) The Company shall enter into an underwriting agreement with the
managing underwriter(s) selected for such underwriting, if any, by Holders
holding a Majority of the Underwriter's Unit Option Warrant, UW Units and Units
underlying the Underwriter's Unit Option Warrant requested to be included in
such underwriting. Such underwriting agreement shall be 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 as are customarily contained in agreements of that type used by the
managing underwriter(s).
The Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Underwriter's Unit Option Warrant, UW Units and the
Units underlying the Underwriter's Unit Option Warrant and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or
15
<PAGE> 17
for the benefit of such underwriter(s) 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 underwriter(s) except as
they may relate to such Holders, their intended methods of distribution, and
except for matters related to disclosures with respect to such Holders,
contained or required to be contained, in such registration statement under the
Act and the rules and regulations thereunder.
(k) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Underwriter's Unit Option Warrant, UW Units and Units, shall mean
in excess of fifty percent (50%) of the then outstanding Units, assuming the
full exercise of all Underwriter's Unit Option Warrant and UW Units 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 families,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to Rule 144 under the Act or a registration
statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
The Exercise Price and number of securities issuable with respect to the
Underwriters' Warrants and the Unit Warrants shall be adjusted on the same terms
and conditions, and at the same time,
16
<PAGE> 18
as any adjustments in the Exercise Price and number of shares issuable with
respect to the Public Warrants required by the terms of the Public Warrants.
9. Exchange and Replacement of Underwriter's Unit Option Warrants. Each
Underwriter's Unit Option Warrant is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Underwriter's Unit Option Warrant of like tenor and date
representing in the aggregate the right to purchase the same number of Units as
provided in the original Underwriter's Unit Option Warrant 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 Underwriter's Unit Option
Warrant, 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 Underwriter's Unit Option Warrant, if mutilated, the Company will make and
deliver a new Underwriter's Unit Option Warrant of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares
17
<PAGE> 19
of Common Stock upon the exercise of the Underwriter's Unit Option Warrant, nor
shall it be required to issue scrip or pay cash in lieu of fractional interests,
it being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights.
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 Underwriter's Unit Option
Warrant and the UW Units, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Underwriter's Unit
Option Warrant and/or the UW Units and payment of the Exercise Price therefor,
all UW Units and/or shares of Common Stock and other securities issuable upon
such exercise shall be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder. As long as the
Underwriter's Unit Option Warrant and/or UW Units shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Underwriter's Unit Option Warrant and UW Units to be
listed (subject to official notice of issuance) on all securities
18
<PAGE> 20
exchanges on which the Common Stock issued to the public in connection herewith
may then be listed and/or quoted on NASDAQ.
12. Notices to Underwriter's 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 Underwriter's Unit Option Warrant or UW Units 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 current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
19
<PAGE> 21
(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 such events the Company shall
give written notice of such event at least fifteen (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
20
<PAGE> 22
made when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Underwriter's Unit Option
Warrant, 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 Underwriter may from
time to time supplement or amend this Agreement without the approval of any
holders of Underwriter's Unit Option Warrants (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which 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 Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Underwriter's Unit Option Warrants.
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.
21
<PAGE> 23
16. Termination. This Agreement shall terminate at the close of business
on , 2003. Notwithstanding the foregoing, the indemnification provisions of
Section 7 shall survive such termination until the close of business on ,
2005.
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Underwriter's Unit Option Warrant 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 such State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders 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 Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, the Underwriter and the Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such process
or summons to be served upon any of the Company, the Underwriter and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at
22
<PAGE> 24
the address set forth in Section 13 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Underwriter and the Holders 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, except as provided in Section 14 hereof, may not be
modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
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.
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.
23
<PAGE> 25
21. Benefits or this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Underwriter's Unit Option
Warrants or Shares underlying the Underwriter's Unit Option Warrant any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Underwriter's Unit Option Warrants or Units.
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 instrument.
24
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] ANTHRA PHARMACEUTICALS, INC.
By___________________________________
Name:
Title:
Attest:
_______________________________
Secretary
JANSSEN/MEYERS ASSOCIATES, L.P.
BY: MEYERS/JANSSEN SECURITIES CORP.
General Partner
By___________________________________
Bruce Meyers
Vice President
25
<PAGE> 27
EXHIBIT A
[FORM OF UNDERWRITER'S UNIT OPTION WARRANT CERTIFICATE]
THE UNDERWRITER'S UNIT OPTION WARRANT REPRESENTED BY THIS CERTIFICATE AND THE
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S UNIT OPTION WARRANT REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITER'S WARRANT
AGREEMENT FOR UNITS REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ___________, 2003
No. W- ______ Underwriter's Unit Option Warrant
Underwriter's Unit Option Warrant
This Underwriter's Unit Option Warrant certifies that Janssen/Meyers
Associates, LP, or registered assigns, is the registered holder of 200,000
Underwriter's Unit Option Warrants to purchase initially, at any time from ,
1998 until 5:30 p.m. New York time on , 2003 ("Expiration Date"), up to
200,000 Class UW Units (the "Warrants") of Anthra Pharmaceuticals, Inc,. a
Delaware corporation (the "Company"), at an initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $7.00 [140% of the
public offering price of the Units] upon surrender of this Underwriter's Unit
Option Warrant and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the Underwriter's
Warrant Agreement for Units dated as of , 1998 between the Company and
Janssen/Meyers Associates, LP (the "Underwriter's Warrant Agreement"). Payment
of the Exercise
<PAGE> 28
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company.
No Underwriter's Unit Option Warrant may be exercised after 5:30 p.m., New
York time, on the Expiration Date, at which time all Underwriter's Unit Option
Warrant evidenced hereby, unless exercised prior thereto, shall thereafter be
void.
The Underwriter's Unit Option Warrant evidenced by this Underwriter's Unit
Option Warrant Certificate are part of a duly authorized issue of Units pursuant
to the Underwriter's Warrant Agreement, which Underwriter's Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Underwriter's Unit Option Warrant.
The Underwriter's Warrant Agreement provides that upon the occurrence of
certain events the exercise prices and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Underwriter's
Unit Option Warrant Certificate evidencing the adjustment in the exercise price
and the number and/or type of securities issuable upon the exercise of the
Underwriter's Unit Option Warrant; provided, however, that the failure of the
Company to issue such new Underwriter's Unit Option Warrants shall not in any
way change, alter or otherwise impair, the rights of the holder as set forth in
the Underwriter's Warrant Agreement.
Upon due presentment for registration of transfer of this Underwriter's
Unit Option Warrant at an office or agency of the Company, a new Underwriter's
Unit Option Warrant or Underwriter's Unit Option Warrants of like tenor and
evidencing in the aggregate a like number of Underwriter's Unit Option Warrants
shall be issued to the transferee(s) in exchange for this Underwriter's Unit
Option Warrant, subject to the limitations provided herein and in the
Underwriter's Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Underwriter's Unit Option
Warrants evidenced by this Certificate, the Company shall
2
<PAGE> 29
forthwith issue to the holder hereof a new Underwriter's Unit Option Warrant
Certificate representing such number of unexercised Underwriter's Unit Option
Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Underwriter's Unit Option Warrant (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Underwriter's Unit Option Warrant which are defined
in the Underwriter's Warrant Agreement shall have the meanings assigned to them
in the Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Unit Option
Warrant to be duly executed under its corporate seal.
Dated as of _____________, 1998
ANTHRA PHARMACEUTICALS, INC.
[SEAL] By__________________________________
Name:
Title:
Attest:
___________________________
Secretary
3
<PAGE> 30
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Underwriter's Unit Option Warrant, to purchase _____________
Class UW Units 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
Anthra Pharmaceuticals, Inc. in the amount of $_________________ , all in
accordance with the terms hereof. The undersigned requests that a certificate
for such securities be registered in the name of _______________________________
___________________________________________________ whose address is
_____________________________________________________ and that such Certificate
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 Underwriter's Unit Option
Warrant.)
________________________________
Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 1
Exhibit 5
[MORRISON & FOERSTER LLP LETTERHEAD]
Anthra Pharmaceuticals, Inc.
103 Carnegie Center, Suite 102
Princeton, NJ 08540
Ladies and Gentlemen:
At your request, we have examined the Registration Statement
on Form S-1 filed by Anthra Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "SEC") on March 11,
1998 (Registration No. 333-47725), Amendment No. 1 thereto filed on April 28,
1998, Amendment No. 2 thereto filed on May 15, 1998, Amendment No. 3 thereto
filed on May 21, 1998 and Amendment No. 4 thereto filed on September __, 1998
(collectively, the "Registration Statement"), with exhibits as filed in
connection therewith, and the form of prospectus contained therein, relating to
the registration under the Securities Act of 1933, as amended (the "Securities
Act"), of up to 2,300,000 units (the "Units"), each Unit consisting of one share
of the Company's common stock, $0.01 par value per share (the "Common Stock"),
and one redeemable warrant to purchase one share of Common Stock (the
"Warrants"), of which 300,000 Units may be purchased to cover over-allotments,
if any. The Registration Statement also registers (1) a warrant to be issued to
the underwriter of the public offering (the "Underwriter") to purchase 200,000
Units (the "Underwriter's Warrant"), (2) the 200,000 Units (the "Underwriter's
Units") issuable upon the exercise of the Underwriter's Warrant, (3) the 200,000
shares of Common Stock underlying the Underwriter's Units, (4) the 200,000
Warrants underlying the Underwriter's Units and (5) the 200,000 shares of Common
Stock underlying the Warrants underlying the Underwriter's Units. The Units and
the Underwriter's Warrant and the securities underlying such Units and
Underwriter's Warrant are collectively referred to herein as the "Securities."
The Securities are being sold to the Underwriter pursuant to an Underwriting
Agreement to be entered into by the Company and the Underwriter.
As counsel to the Company, we have examined such corporate
records, documents, instruments, certificates of public officials and of the
Company and such questions of law as we have deemed necessary for the purpose of
rendering the opinions set forth herein. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to originals of all documents submitted to us as
certified, photostatic or conformed copies, and the authenticity of the
originals of all such latter documents. We have also assumed the due execution
and delivery of all documents where
<PAGE> 2
Anthra Pharmaceuticals, Inc.
September __, 1998
Page 2
due execution and delivery are prerequisites to the effectiveness thereof. We
have relied upon certificates of public officials and certificates of officers
of the Company for the accuracy of material, factual matters contained therein
which were not independently established.
Based on the foregoing and on all other instruments, documents
and matters examined in connection with rendering this opinion and subject to
the effectiveness of the Registration Statement with the SEC and to the
registration or qualification under the securities laws of the states in which
the Securities may be sold, upon the sale and issuance of the Securities in the
manner referred to in the Registration Statement and in accordance with the
terms of the Underwriting Agreement, we are of the opinion that:
1. The issuance of the shares of Common Stock comprising a
part of the Units has been duly authorized by the Board of Directors of the
Company, and such shares, when issued, will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock.
2. The issuance of the Warrants (comprising a part of the
Units) has been duly authorized by the Board of Directors of the Company, and
such Warrants when issued will constitute legal, valid and binding obligations
of the Company in accordance with their terms, except (i) as enforceability may
be limited by bankruptcy, insolvency, fraudulent transfer, moratorium or other
similar laws relating to or limiting creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity) and (ii) to the extent that rights to
indemnity and contribution thereunder may be limited under applicable laws.
3. The issuance of the Underwriter's Warrant has been duly
authorized by the Board of Directors of the Company, and such warrant when
issued will constitute legal, valid and binding obligations of the Company, in
accordance with its terms, except (i) as enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, moratorium or other similar laws
relating to or limiting creditors' rights generally and by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity) and (ii) to the extent that rights to indemnity and
contribution thereunder may be limited under applicable laws.
4. The shares of Common Stock issuable upon the exercise of
the Warrants have been duly authorized by the Board of Directors of the Company,
and, upon exercise of the Warrants in accordance with their terms and payment of
the exercise price therefor, will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock.
We express no opinion as to the applicability or effect of any
laws, orders or judgements of any state of jurisdiction other than federal
securities laws, the substantive laws of the State of New York and the General
Corporation Law of the State of Delaware. Further, our
<PAGE> 3
Anthra Pharmaceuticals, Inc.
September __, 1998
Page 3
opinion is based solely upon existing laws, rules and regulations, and we
undertake no obligation to advise you of any changes that may be brought to our
attention after the date hereof.
We consent to the use of our name under the caption "Legal
Matters" in the Prospectus, constituting part of the Registration Statement, and
to the filing of this opinion as an exhibit to the Registration Statement.
By giving you this opinion and consent, we do not admit that
we are experts with respect to any part of the Registration Statement or
Prospectus within the meaning of the term "expert" as used in Section 11 of the
Securities Act or the rules and regulations promulgated thereunder by the SEC,
nor do we admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
Morrison & Foerster LLP
<PAGE> 1
Certain confidential portions of this Exhibit were omitted by means of blackout
of the text (the "Mark"). This Exhibit has been filed separately with the
Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
EXHIBIT 10.11
DEVELOPMENT AGREEMENT
by and between
ANTHRA PHARMACEUTICALS, INC.
and
MEDEVA CALIFORNIA INC.
Dated as of July 15, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.................................................................. 2
ARTICLE II
OWNERSHIP INTEREST; PRODUCT DEVELOPMENT...................................... 8
2.1 Grant of Interest........................................ 8
2.2 Right to Payments........................................ 9
2.3 Transfer of Interests.................................... 9
2.4 Purchase Option.......................................... 9
2.5 Clinical Studies......................................... 10
2.6 NDA Filings.............................................. 11
2.7 Performance.............................................. 12
2.8 Communications with FDA.................................. 12
2.9 Ovarian Indication....................................... 13
2.10 Development Expenses..................................... 13
2.11 Further Funds............................................ 14
2.12 Continued Development.................................... 15
ARTICLE III
SUPPLY OF THE PRODUCT........................................................ 16
3.1 General.................................................. 16
3.2 Inventory of AD 32....................................... 17
3.3 Good Faith Forecasts..................................... 21
3.4 Issuance of Purchase Orders.............................. 21
3.5 Acceptance of Purchase Orders............................ 22
3.6 Delivery................................................. 22
3.7 Contract Manufacturing................................... 22
3.8 Inability to Supply...................................... 24
3.9 Alternate Supply......................................... 26
3.10 Warranty................................................. 27
3.11 Price ................................................... 27
3.12 Property Insurance....................................... 28
3.13 Records ................................................. 29
ARTICLE IV
QUALITY CONTROL ............................................................. 29
4.1 Product Specifications Amendments........................ 29
4.2 Nonconformance........................................... 30
4.3 Manufacturing Process.................................... 32
4.4 Inspection............................................... 32
4.5 Safety Procedures........................................ 33
4.6 Government Inspection.................................... 33
<PAGE> 3
Page
----
ARTICLE V
LICENSE GRANTS .............................................................. 34
5.1 Grants................................................... 34
5.2 Sublicenses.............................................. 35
5.3 Other Countries.......................................... 35
5.4 Trademarks............................................... 36
5.5 Technical Assistance..................................... 37
ARTICLE VI
MARKETING AND SALE OF THE PRODUCT
UNDER THE LICENSING ARRANGEMENT.............................................. 37
6.1 General.................................................. 37
6.2 Compliance............................................... 38
6.3 Trademarks............................................... 38
6.4 Price of the Product..................................... 38
6.5 Marketing Materials...................................... 39
6.6 Product Liability Insurance.............................. 39
6.7 Competition.............................................. 39
6.8 Co-Promotion............................................. 40
6.9 Activities Outside the Territory......................... 41
ARTICLE VII
DEVELOPMENT FEES, LICENSE FEES AND ROYALTIES................................. 41
7.1 Development Fees......................................... 41
7.2 License Fees............................................. 43
7.3 Royalties................................................ 44
7.4 Payment.................................................. 45
7.5 Equity Interest.......................................... 46
7.6 Withholding Taxes........................................ 46
ARTICLE VIII
EXECUTIVE MANAGEMENT COMMITTEE............................................... 47
8.1 Formation of the EMC..................................... 47
8.2 Authority of the EMC..................................... 47
8.3 Procedural Rules of the EMC.............................. 48
ARTICLE IX
REPORTING ................................................................... 49
9.1 Reporting by Parties..................................... 49
9.2 Record Keeping........................................... 50
9.3 Audit of Records......................................... 50
ARTICLE X
ADVERSE EVENT AND OTHER INFORMATION EXCHANGE................................. 51
10.1 Notification............................................. 51
10.2 Material Communications.................................. 52
<PAGE> 4
Page
----
ARTICLE XI
PRODUCT RECALL .............................................................. 53
11.1 Notification and Recall.................................. 53
11.2 Recall Expenses.......................................... 54
ARTICLE XII
INTELLECTUAL PROPERTY RIGHTS................................................. 55
12.1 Ownership of Product Know-how............................ 55
12.2 Ownership of Filings and Approvals....................... 56
12.3 Ownership of Data........................................ 56
12.4 Enforcement of Intellectual Property
Rights................................................... 56
12.5 Offset for Infringement.................................. 60
ARTICLE XIII
CONFIDENTIALITY ............................................................. 61
13.1 Confidential Information................................. 61
13.2 Certain Definitions...................................... 62
13.3 Disclosure of Confidential Information --
Internal................................................. 63
13.4 Disclosure of Confidential Information --
Third Parties............................................ 63
13.5 Care and Return of Confidential
Information.............................................. 65
13.6 Use of Names............................................. 66
ARTICLE XIV
WARRANTIES; INDEMNITIES...................................................... 66
14.1 Representations and Warranties........................... 66
14.2 Warranties of Anthra..................................... 67
14.3 Warranties of Medeva..................................... 70
14.4 Indemnification of Medeva................................ 71
14.5 Indemnification of Anthra................................ 72
14.6 Indemnification Procedure................................ 72
14.7 Limitation of Liability.................................. 75
ARTICLE XV
TERM AND TERMINATION......................................................... 75
15.1 Term .................................................... 75
15.2 Termination for Material Breach.......................... 76
15.3 Established Material Breach.............................. 76
15.4 Non-Binding, Non-Admissible Arbitration
Decision................................................. 77
15.5 Termination for Other Events............................. 78
15.6 Partial Termination by Medeva............................ 79
15.7 Effect of Expiration or Termination...................... 79
15.8 Survival of Rights and Obligations....................... 80
<PAGE> 5
Page
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ARTICLE XVI
GENERAL PROVISIONS .......................................................... 81
16.1 Force Majeure............................................ 81
16.2 Notice .................................................. 81
16.3 Further Assurances....................................... 82
16.4 Successors and Assigns................................... 83
16.5 Governing Law............................................ 83
16.6 Attorney's Fees.......................................... 84
16.7 Severability............................................. 84
16.8 Waiver .................................................. 85
16.9 Counterparts............................................. 85
16.10 Captions................................................. 85
16.11 Independent Contractors.................................. 86
16.12 Entire Agreement......................................... 86
ANNEX A ..................................................................... 88
ANNEX B ..................................................................... 89
ANNEX C ..................................................................... 90
ANNEX D ..................................................................... 91
ANNEX E ..................................................................... 92
<PAGE> 6
THIS DEVELOPMENT AGREEMENT (this "Agreement"), made as of July 15,
1997, by and between Anthra Pharmaceuticals, Inc., a corporation organized under
the laws of the State of Delaware ("Anthra"), and Medeva California Inc., a
corporation organized under the laws of California ("Medeva"),
WITNESSETH:
WHEREAS, Anthra has developed certain proprietary know-how and data
with respect to N-Trifluoroacetyladriamycin-14 valerate, a doxorubicin
derivative ("AD 32"), as further described in Annex A hereto,
WHEREAS, Anthra intends to continue the development of, and secure
the regulatory approvals required in order to manufacture, promote, market and
sell AD 32 in the United States, including its territories, possessions and
commonwealths (the "Territory"),
WHEREAS, Medeva has considerable expertise in the development,
promotion, marketing and sale of pharmaceutical products in the Territory, and
has in place a large and experienced marketing staff that can expedite the
distribution of AD 32 in the Territory,
WHEREAS, Medeva and Anthra desire to enter into a co-ownership
arrangement with respect to the Product Know-how, as defined below, on the terms
set forth herein, and
WHEREAS, Anthra desires to grant Medeva an exclusive license in the
Territory with respect to the Product Know-how, on the terms set forth herein;
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NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "AD 32" shall have the meaning set forth in the preamble hereto.
1.2 "Affiliate" of a person shall mean any corporation, partnership
or other entity that directly, or indirectly through one or more intermediaries,
Controls, is controlled by or is under common control with such person.
1.3 "Anthra" shall mean Anthra Pharmaceuticals, Inc.
1.4 "Anthra Patent Rights" shall mean all patents and patent
applications (which for purposes of this Agreement shall be deemed to include
certificates of invention, applications for certificates of invention, and
utility models) throughout the world, covering or relating to the Product,
including any substitutions, extensions, reissues, reexaminations, renewals,
divisions, continuations, or continuations-in-part, which Anthra owns or
controls and under which Anthra has the right to grant sublicenses to Medeva,
during the term of this Agreement.
1.5 "Arbitration Decision" shall have the meaning set forth in
Section 15.3.
1.6 "Arbitration Panel" shall have the meaning set forth in Section
15.3.
1.7 "CIS Approval" shall have the meaning set forth
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in Section 7.1(c).
1.8 "CIS Indication" shall mean the indication for refractory
bladder carcinoma in situ.
1.9 "Calendar Quarter" shall mean a three-month period starting on
January 1, April 1, July 1, or October 1 of any calendar year.
1.10 "Collateral" shall have the meaning set forth in Section
3.2(c).
1.11 "Control" and, with correlative meanings, the terms "controlled
by" and "under common control with" shall mean the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract, resolution, regulation or
otherwise.
1.12 "Development Activities" shall have the meaning set forth in
Section 2.5.
1.13 "Disclosing Party" shall have the meaning set forth in Section
13.1.
1.14 "EMC" shall mean the Executive Management Committee to be
established pursuant to Section 8.1.
1.15 "Established Material Breach" shall have the meaning set forth
in Section 15.3.
1.16 "FDA" shall mean the United States Food and Drug Administration
and any successor agency having substantially the same functions.
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1.17 "GMP" shall mean current Good Manufacturing Practices in effect
from time to time during the term of this Agreement.
1.18 "Improvement" shall mean any modification to a product, or any
discovery, technology, device or formulation, including, without limitation, any
enhancement in the presentation, means of delivery, dosage or packaging, of a
product, or any discovery or development of a new indication for a product.
1.19 "Inventory" shall have the meaning set forth in Section 3.2(c).
1.20 "Launch" shall mean the first commercial sale of the Product in
the Territory.
1.21 "Losses" shall have the meaning set forth in Section 14.4.
1.22 "Market" or "Marketing" shall mean all programs and activities
relating to the marketing and promotion of the Product in the Territory,
including but not limited to labeling, advertising, marketing studies, seminars,
symposia, training and education, and detailing.
1.23 "Medeva" shall mean Medeva California Inc.
1.24 "NDA" shall mean a New Drug Application or Supplemental New
Drug Application made in accordance with applicable regulations and requirements
of the FDA in effect from time to time.
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1.25 "Negotiation Period" shall have the meaning set forth in
Section 2.5.
1.26 "Net Sales" shall mean,***
1.27 "NAFTA Area" shall mean the countries, territories and
possessions covered by the North American Free Trade Agreement.
1.28 "Notice" shall have the meaning set forth in Section 16.2.
1.29 "Other Trademarks" shall have the meaning set forth in Section
1.40.
1.30 "Ovarian Agreement" shall mean the agreement that Medeva and
Anthra, on the one hand, and Medeva on the other hand, may enter into pursuant
to Section 2.9, setting forth the terms and conditions on which Anthra will
proceed with the preparation and filing of an NDA for the Product for the
Ovarian Indication, including without limitation appropriate license grants by
Anthra and Medeva and provisions for milestone and royalty payments by Medeva.
1.31 "Ovarian Indication" shall mean the indication for ovarian
cancer.
1.32 "Papillary Approval" shall have the meaning set forth in
Section 7.1(d).
1.33 "Papillary Indication" shall mean the indication for the
adjunctive treatment of papillary bladder tumors.
1.34 "Product" shall mean AD 32, in finished dosage
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form in 200 mg vials, for administration intravesically and intraperitoneally.
1.35 "Product Know-how" shall mean all technical knowledge,
expertise, skill, practice, proprietary rights, inventions, formulae, trade
secrets, analytical methodology, processes, preclinical, clinical, stability and
other data, toxicological information and all other experience in tangible or
intangible form relating to the Product in which Anthra has an ownership or
licensable interest and which is in the possession or under the control of
Anthra as of the date of this Agreement, or which Anthra may develop, acquire or
control (pursuant to an ownership or licensable interest) hereafter pursuant to
this Agreement. "Product Know-how" shall be deemed to include any and all Anthra
Patent Rights.
1.36 "Product Specifications" shall mean the specifications and
quality control testing procedures for the Product set forth in Annex A hereto,
as amended and/or supplemented from time to time pursuant to Section 4.1.
1.37 "Receiving Party" shall have the meaning set forth in Section
13.1.
1.38 "Sublicensee" shall have the meaning set forth in Section 5.2.
1.39 "Territory" shall have the meaning set forth in the preamble.
1.40 "Trademarks" shall mean those trademarks and
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trade names designed for and used by Medeva or its Affiliates or Sublicensees in
the Marketing and sale of the Product hereunder, but shall not include any other
trademark or trade name used by Medeva in connection with its other products
(even if also used in connection with the Product), particularly any mark or
name that identifies Medeva or any of its Affiliates or Sublicensees
(collectively, the "Other Trademarks").
ARTICLE II
OWNERSHIP INTEREST; PRODUCT DEVELOPMENT
2.1 Grant of Interest. Anthra hereby grants to Medeva *** ownership
interest (the "Medeva Interest") in all of its rights, title and interest in the
Product Know-how as exploited in the Territory (the remaining ownership interest
therein, the "Anthra Interest") (collectively, the "Interests"); provided,
however, that Medeva may not exploit the Product Know-how except to the extent
expressly set forth elsewhere in this Agreement; and provided, further, that
nothing in this Article II shall restrict the rights of Anthra with respect to
the ownership of, or exploitation of Product Know-how outside the Territory.
2.2 Right to payments. Anthra agrees to pay ***.
2.3 Transfer of Interests. Neither party shall have the right to
sell, transfer, encumber or otherwise assign its Interest without the prior
written consent of the other party, except in connection with a permitted
assignment of this Agreement by such party pursuant to Section 16.4.
2.4 Purchase Option. Upon the termination or expiration of this
Agreement, Anthra shall have the option (the "Purchase Option"), exercisable
upon written notice to Medeva, to purchase the Medeva Interest for an amount
equal to the fair market value thereof at the time of exercise. Upon receipt of
written notice from Anthra and receipt of payment of the fair market value of
the Medeva Interest, Medeva shall promptly return, assign, or otherwise effect
the complete
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transfer to Anthra of the entire Medeva Interest. The fair market value of the
Medeva Interest shall be determined in good faith by the parties; provided,
however, that if the parties are unable to agree on the fair market value
thereof, then an independent appraiser, mutually acceptable to the parties,
shall determine such fair market value; and provided, further, that any such
determination by such appraiser shall be conclusive and binding on the parties.
2.5 Clinical Studies. Anthra shall perform, directly or indirectly
(i) all tests, studies and other activities necessary in connection with the
preparation and filing of an NDA for the Product for each of the CIS Indication
and the Papillary Indication, as listed in the clinical plan set forth in Annex
B hereto, (ii) for a period beginning on the date hereof and ending on the
earlier to occur of (A) the first anniversary of the date hereof (the
"Negotiation Period") and (B) an impasse in negotiations pursuant to Section
2.9(b), all tests, studies and other activities set forth in Annex B hereto
relating to the preparation and filing of an NDA for the Product for the Ovarian
Indication, (iii) such other tests and studies of the Product as may be required
from time to time by the FDA with respect to indications for the Product as to
which Anthra is obligated to file an NDA pursuant to this Agreement, whether
prior to or after the approval of such NDA, and (iv) all other
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tests and studies of the Product that Medeva deems necessary or appropriate to
have conducted with respect to any such indication after the grant by the FDA of
an "approvable letter" with respect to such indication, including without
limitation all clinical studies to support the Marketing of the Product for such
indication (collectively, the "Development Activities").
2.6 NDA Filings. Anthra agrees to prepare and file an NDA for the
Product for each of the CIS Indication and the Papillary Indication and to use
commercially reasonable efforts to obtain approval thereof. Promptly upon the
completion (and prior to the filing) of each such NDA, Anthra shall provide
Medeva with a copy of the Chemistry, Manufacturing, and Controls (CMC) section
thereof, and agrees to delay the filing of such NDA with the FDA for a period of
sixty (60) days after the date such copy was provided to Medeva, unless the EMC
shall unanimously approve the filing of such NDA prior to the end of such
period. Insofar as timely received, Medeva's reasonable views and requests shall
be taken into account prior to the submission of such NDA. All such NDAs shall
be filed in the name of Anthra, but shall be held subject to the Medeva Interest
as herein provided, and Anthra shall use commercially reasonable efforts to
maintain such NDAs after approval thereof.
2.7 Performance. Anthra shall perform, or cause to
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be performed, the Development Activities in good scientific manner, and in
compliance in all material respects with all requirements of applicable laws,
rules, regulations and guidelines.
2.8 Communications with FDA. Anthra shall be responsible for all
communications with the FDA relating to the Product, whether occurring prior to
or after the Launch of the Product; provided, however, with respect to any such
communications after the Launch, whenever practicable Anthra shall consult with
Medeva prior to such communication and shall take account of Medeva's timely and
reasonable views and requests; provided, further, that if such advance
consultation is not possible, then Anthra shall promptly thereafter advise
Medeva of the content of such communications. After the approval of the NDA for
the Product for an indication, Medeva may initiate communications with the FDA
with regard to such indication, as required by applicable law, and may respond
to inquiries initiated by the FDA; provided, however, that Medeva shall consult
with Anthra prior to such communications and shall take account of Anthra's
timely and reasonable views and requests and, if such advance consultation is
not possible, then Medeva shall promptly thereafter advise Anthra of the content
of such communications.
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2.9 Ovarian Indication.
(a) During the Negotiation Period, Anthra shall provide to
Medeva such information concerning the Development Activities relating to the
Ovarian Indication as Medeva may reasonably request from time to time to assist
it in evaluating the efficacy of the Product for the Ovarian Indication.
(b) Upon the written request of Medeva, Anthra and Medeva
shall use good faith efforts to negotiate an Ovarian Agreement, until the
earlier to occur of an impasse in negotiations or the end of the Negotiation
Period; provided, however, that each party may decide, in its sole discretion,
whether to accept any and all terms and conditions proposed by the other party
for such agreement.
(c) Anthra shall have no obligation whatsoever to undertake or
complete any development work relating to the Ovarian Indication after the
earlier to occur of (i) an impasse in negotiations pursuant to Section 2.9(b)
and (ii) the end of the Negotiation Period, in the event that the parties have
not entered into an Ovarian Agreement.
2.10 Development Expenses. Medeva shall pay to Anthra the payments
set forth in Section 7.1 to cover the development of the Product. Except as
provided in Section 7.1, Anthra shall bear all costs and expenses arising out of
or relating to the Development Activities; provided, however,
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that Medeva shall promptly reimburse Anthra for all of its direct costs and
expenses (including without limitation disbursements to third parties, central
laboratory expenses, travel expenses, and salaries and benefits for relevant
Anthra employees) arising out of or relating to any tests, studies, and other
activities with respect to the CIS or Papillary Indications for the Product that
the FDA may require or that Medeva may request Anthra to conduct, after approval
of the NDA for such indication, exclusive of any such tests, studies or
activities that at the time of approval are specified by the FDA as conditions
subsequent to such approval.
2.11 Further Funds. In the event that Anthra shall be unable to
complete the development of the Product for either the CIS Indication or the
Papillary Indication due to a lack of funds, then Anthra shall provide written
notice to Medeva estimating the amount of funds required (in addition to the
development payments made or to be made by Medeva under Section 7.1) to complete
the development of the Product for such Indication. Medeva may, in its sole
discretion, elect to advance to Anthra all or a portion of such amount, and
Anthra shall have no obligation to pay interest on the funds so advanced, or to
repay the principal amount of such advance; provided, however, that Medeva may
set off an amount (the "Advance Reimbursement Amount") equal to *** against its
license fee payment obligations pursuant to Section 7.2 and royalty payment
obligations pursuant to Section 7.3, as they accrue, subject to a cap of ***.
2.12 Continued Development. In the event that Anthra reasonably
determines at any time that the NDA for an indication for the Product is
unlikely to be approved by the FDA, then it shall so notify Medeva, whereupon
Anthra shall have no further obligation pursuant to this Article II to conduct
any Development Activities with respect to such indication for the Product. Upon
receipt of such notice, Medeva shall elect, in its sole discretion, either to
terminate this Agreement with respect to such indication for the Product, or to
continue (or contract for a third party to continue) such Development Activities
at the sole expense of Medeva. Medeva shall notify Anthra of such election
within ninety (90) days after the receipt of the notice referred to
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in the first sentence of this Section 2.12. In the event that Medeva shall
decide to continue (or have continued) such Development Activities, then (i)
Anthra shall provide Medeva with copies of such data, information and regulatory
documentation relating to the Product as Anthra shall have developed in the
performance of its Development Activities with respect to such indication, (ii)
Anthra shall grant Medeva the right to reference the relevant drug master file
of Anthra and to use such data, information and regulatory documentation, all
solely for the purpose contemplated by this Section 2.12, and (iii) ***.
ARTICLE III
SUPPLY OF THE PRODUCT
3.1 General. Subject to the terms and conditions of
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this Agreement, Anthra agrees to use its commercially reasonable efforts to
supply Medeva with its requirements of the Product, and Medeva agrees to
purchase from Anthra its requirements of the Product, for resale in the
Territory pursuant to this Agreement.
3.2 Inventory of AD 32.
(a) In order to enable Anthra to meet its obligations under
this Article III with respect to the timely supply of Product to Medeva, the
parties agree that Anthra shall purchase and maintain in inventory, from time to
time, such quantities of AD 32 as the EMC shall decide, subject to contractual
restrictions in the supply agreement(s) in effect from time to time between
Anthra and its supplier(s) of AD 32 and subject to the terms and conditions of
this Section 3.2. Such inventory shall be utilized in the manufacture of the
Product on a first-in-first-out (FIFO) basis.
(b) Medeva agrees to reimburse Anthra, by check or wire
transfer, within ten days after receipt of an invoice therefor, for fifty
percent (50%) of the cost of each purchase made pursuant to Section 3.2(a) (each
such reimbursement amount, an "Advance"), which AD 32 shall be used exclusively
to meet Anthra's supply obligations under this Article III, except as otherwise
provided in Section 3.2(c). Anthra shall credit each Advance against the supply
price payable by Medeva pursuant to Section 3.11 for the purchase of Product
manufactured from that shipment of AD 32 in respect of which the Advance was
made; provided, however, that if, for any reason, Medeva shall fail to recoup,
pursuant to the foregoing recoupment provision, one hundred percent (100%) of
its Advances in respect of any shipment of AD 32 by the earlier to occur of (i)
the expiration date of such shipment of AD 32 and (ii) the date of delivery to
Medeva of Product manufactured from a subsequently-received shipment of AD 32,
then within five (5) days thereafter, Anthra shall pay to Medeva such
unrecouped amount.
(c) As collateral security for the due and punctual crediting
or repayment, as the case may be, by Anthra of all Advances pursuant to Section
3.2(b) hereof (collectively, the "Obligations"), Anthra hereby grants Medeva a
continuing security interest in and lien upon all right, title and interest of
Anthra, whether now existing or hereafter arising, in and to all inventory of AD
32 in respect of which Medeva has made Advances pursuant to Section 3.2(b),
wherever located, and all accessions thereto (collectively, the "Inventory") and
documents therefor, and all cash and non-cash proceeds of any and all of the
foregoing, including, without limitation, all payments under insurance, or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing (all of the foregoing items
collectively, the "Collateral").
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Anthra covenants and agrees with Medeva that: (i) Medeva's
sole duty with respect to the Collateral is to use such care as it uses for
similar property for its own account; (ii) Anthra will (a) be solely
responsible for all matters relating to the Collateral, except as otherwise
provided in this Agreement, (b) not, and will not purport to, grant or suffer
liens against, or sell, transfer or dispose of any Collateral other than to
Contract Manufacturer(s) in the ordinary course of business pursuant to this
Agreement, (c) from time to time take all actions, and make all filings and
recordations reasonably requested by Medeva in connection with Medeva's
security interest in the Collateral, at Medeva's expense, (d) maintain at all
times with respect to the Inventory insurance against risks customarily insured
against by companies engaged in a business similar to that of Anthra, and (e)
permit Medeva to inspect the Collateral, wherever located, at any reasonable
time and upon reasonable notice; (iii) Medeva is authorized to file financing
statements and give notice to third parties regarding the Collateral without
Anthra's signature to the extent permitted by law, at any time and from time to
time; (iv) Anthra will not change its name nor the location of the Collateral
(except for transfers to Contract Manufacturers for finishing into Product in
the ordinary course of its business pursuant to this Agreement) without the
prior written consent of Medeva, which consent shall not be unreasonably
withheld; and (v) Anthra will stamp or otherwise mark its books and records to
reflect the security interest of Medeva in the Collateral; provided, however,
that, with the prior consent of the EMC, Anthra may discharge Medeva's security
interest in one or more items of Collateral by payment to Medeva of an amount
equal to any unrecouped and unrepaid portion of its Advances made with respect
thereto, whereupon Medeva shall release its lien on such items and such items
shall cease to be deemed Inventory and Collateral or otherwise subject to the
provisions of this Agreement and Anthra may use such items in any manner and
for any purpose whatsoever, including without limitation the supply of AD 32 or
finished product to other licensees of Anthra outside the Territory.
Upon the occurrence of any default in the Obligations, Medeva
shall have all of the rights and remedies of a secured party under the Uniform
Commercial Code as in effect in the State of New York and any other applicable
law with respect thereto, and may exercise such rights and remedies without
advertisement or demand upon or notice to Anthra or right of redemption of
Anthra, all of which are hereby expressly waived to the fullest extent
permitted by applicable law.
Anthra hereby irrevocably designates and appoints each of
Medeva and its designees or agents (each an "Attorney") as attorney-in-fact of
Anthra, with power of substitution, each with authority acting alone, to take
all actions reasonably necessary or advisable to carry out and enforce the
rights of Medeva pursuant to this Section 3.2(c), including without limitation
signing or endorsing Anthra's name on notes, acceptances, checks, drafts,
instruments, certificates, powers, assignments and other documents in respect to
the Collateral, and executing proofs of claim and loss, releases, endorsements,
assignments and other instruments of conveyance in respect of the Collateral.
This power of attorney is irrevocable and coupled with an interest.
3.3 Good Faith Forecasts.
(a) No later than *** after Anthra files the NDA for the
Product for the CIS Indication or the Papillary Indication, whichever shall
occur first, Medeva shall provide Anthra with a good faith forecast estimating
Medeva's quarterly requirements of the Product (and the desired delivery dates
therefor) for the *** period commencing on the first day of the immediately
succeeding ***.
(b) Thereafter, not less than *** prior to the beginning of
each *** during the term hereof, Medeva shall provide Anthra with an updated
good faith forecast estimating Medeva's monthly requirements of the Product for
the *** period commencing on the first day of such ***.
3.4 Issuance of Purchase Orders. Medeva shall order a shipment of
the Product by issuing a purchase order to Anthra specifying the quantity and
desired delivery date thereof, not less than *** prior to the delivery date;
provided, however, that the aggregate quantity of Product ordered by Medeva for
delivery in any month shall not exceed
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the quantity of Product forecast to be ordered during such month, as set forth
in the latest forecast prepared by Medeva pursuant to Section 3.3 prior to the
first day of the *** in which the purchase order is issued.
3.5 Acceptance of Purchase Orders. Anthra shall accept each purchase
order issued by Medeva in conformity with Section 3.4 within *** after receipt
thereof, unless the inventory of AD 32 maintained by Anthra pursuant to Section
3.2 shall be insufficient to allow for the timely delivery of the ordered
quantity of the Product. Anthra shall give Medeva prompt written notice of the
rejection of any such purchase order specifying the basis for such rejection.
In the event that the terms of any purchase order received by Anthra
from Medeva shall be inconsistent with the terms of this Agreement, the terms of
this Agreement shall control.
3.6 Delivery. Delivery of each order of Product shall be made ***
Medeva's facility in Rochester, New York. Anthra shall arrange for *** of the
Product. *** at the time of delivery to the carrier.
3.7 Contract Manufacturing. Anthra may contract with one or more
unrelated third parties (each a "Contract Manufacturer") to manufacture AD 32 or
Product, provided that (i) Anthra permits Medeva to comment on the drafts of
each toll manufacturing agreement for AD 32 and/or Product (each a "Contract
Manufacturing Agreement") that Anthra may negotiate with a Contract Manufacturer
after the date hereof,
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(ii) Anthra provides Medeva with a true and accurate copy of each such Contract
Manufacturing Agreement, and (iii) Anthra uses commercially reasonable efforts
to cause each Contract Manufacturer to agree to execute and deliver to Medeva a
letter in the form of Annex C hereto, and to include the provisions set forth
therein in the relevant Contract Manufacturing Agreement. As to each Contract
Manufacturer that executes and delivers such a letter to Medeva, Anthra agrees
that Medeva may seek to enforce Anthra's remedies under such Contract
Manufacturing Agreement directly against such Contract Manufacturer without
first exhausting its remedies against Anthra if the Contract Manufacturer
breaches such Contract Manufacturing Agreement so as to cause Anthra to become
liable to Medeva for damages pursuant to Section 3.8 hereof; provided, however,
that if Medeva shall seek to exercise such remedies, Anthra shall remain
primarily liable and obligated to Medeva under all provisions of this Agreement.
Further, Anthra agrees to use commercially reasonable efforts to negotiate the
inclusion in each Contract Manufacturing Agreement of provisions (i) prohibiting
(A) the sublicensing by such Contract Manufacturer of any know-how, data or
technology licensed to it by Anthra and (B) the sale by such Contract
Manufacturer of (x) AD 32 for use in any product to be sold in the Territory, or
(y) Product for resale (other than by Anthra to Medeva, or by Medeva) in the
Territory, and (ii) giving Anthra the right to terminate such Contract
Manufacturing Agreement in the event of a breach of either of the provisions
described in (i) above. Notwithstanding any provision of this Agreement, Anthra
shall have no obligation under this Agreement with respect to Genchem Pharma
Ltd. as a Contract Manufacturer or the Supply Agreement between Anthra and
Genchem Pharma Ltd. as a Contract Manufacturing Agreement.
3.8 Inability to Supply.
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(a) In the event that Anthra shall fail to deliver to Medeva
at least two-thirds of the quantity of Product specified in a purchase order
accepted by Anthra pursuant to Section 3.5 (the "Minimum Quantity"), within 120
days after acceptance of such purchase order, then Anthra shall pay Medeva
liquidated damages in the amount of Five Thousand Dollars (US $5,000) for each
additional day of delay in the delivery to Medeva of the Minimum Quantity;
provided, however, that Anthra shall not be required to pay aggregate damages in
excess of Four Hundred Fifty Thousand Dollars (US $450,000) with respect to any
order; and provided, further, that no such damages shall be payable by Anthra in
the event that (i) at the time of acceptance of such purchase order, at least
fifty percent (50%) of the then-current inventory of AD 32 maintained by
Anthra pursuant to Section 3.2 would be needed in the manufacture of the
quantity of Product specified in such purchase order and (ii) Anthra timely
fills such purchase order to the extent of the aggregate of (A) the quantities
of Product that can be manufactured from the Inventory of AD 32 at the time of
acceptance of such purchase order and (B) Anthra's inventory, as of the delivery
date specified in such purchase order, of Product manufactured from AD 32 that
is collateral.
(b) Subject to the terms and conditions of this Agreement, in
the event that Anthra shall become obligated to pay Medeva liquidated damages in
the amount of Four Hundred Fifty Thousand Dollars (US $450,000) with respect to
an order of Product pursuant to Section 3.8(a), or Anthra shall become subject
involuntarily (which proceeding shall not be dismissed within sixty (60) days
after the commencement thereof) or voluntarily to a bankruptcy, insolvency,
liquidation or other similar proceeding, then Medeva shall have the continuing
right (the "Manufacturing Option"), in addition to all other rights granted
pursuant to this Agreement, to manufacture Product for the term of this
Agreement. Medeva may exercise the Manufacturing Option upon thirty (30) days'
prior written notice to Anthra. Upon Medeva's exercise of the Manufacturing
Option, (i) Anthra shall provide Medeva with copies of such data, information
and regulatory documentation in the possession or under the control of Anthra
(and not subject to a confidentiality obligation) relating to the Product as
Medeva may reasonably require in connection with the manufacturing of Product,
and (ii) Anthra shall grant Medeva the right to reference the relevant drug
master file of Anthra and to use such data, information and regulatory
documentation, all solely for the purpose contemplated by this Section 3.8(b).
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(c) Except for its rights under Sections 11.2 and 15.2, the
rights of Medeva under this Section 3.8 shall be exclusive and in lieu of all
other remedies otherwise available by law or under this Agreement with respect
to any breach by Anthra of its obligation to supply Medeva with Product on a
timely basis pursuant to this Article III. In the event of termination of this
Agreement by Medeva pursuant to Section 15.2 for any such breach by Anthra,
Medeva shall not be entitled to any damages other than those, if any, to which
it may be entitled under Section 3.8(a). For purposes of Section 15.2, if Anthra
shall deliver to Medeva at least two-thirds of the quantity of Product specified
in a purchase order accepted by Anthra pursuant to Section 3.5 within 120 days
after acceptance of such purchase order, then Anthra shall not be deemed to have
breached materially its supply obligation under this Article III with respect to
such purchase order.
3.9 Alternate Supply. Anthra agrees to use commercially reasonable
efforts to cause at least *** of supply of AD 32 to become and remain
pre-qualified during the term of this Agreement.
3.10 Warranty. Anthra warrants and represents that, at the time of
delivery of the Product to Medeva, the Product (i) will have been manufactured,
filled, packaged, stored and shipped in accordance with applicable GMPs and all
other applicable laws, rules, regulations or requirements, (ii) will have been
manufactured, filled, packaged and stored in accordance with the Product
Specifications and the applicable NDA, (iii) will not be adulterated or
misbranded under the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. ss.ss. 321
et seq., as amended ("FFDCA"), or under any other applicable laws, rules,
regulations or requirements, (iv) may be introduced into interstate commerce
pursuant to the FFDCA, and (iv) will have expiration dating not less than ***
after the date of delivery thereof to Medeva, provided that the FDA shall have
approved expiration dating of the Product of not less than ***.
3.11 Price and Payment
(a) The parties hereby agree that the supply price for the
Product, ***.
(b) The supply price for each order of Product shall be
payable by Medeva ***.
3.12 Property Insurance. Anthra shall procure and maintain
throughout the term of this Agreement property insurance (in which Medeva shall
be named as an additional insured), with such types and amounts of coverage as
are customary in the industry, covering all Product intended for sale to Medeva
pursuant hereto, and all AD 32 purchased pursuant to Section 3.2, prior to such
time as the risk of loss thereof passes from Anthra to Medeva. All such
insurance policies shall require at least thirty (30) days prior written notice
to Medeva concerning cancellation thereof. Upon request, Anthra shall provide
Medeva with evidence that such insurance is in effect.
3.13 Records. Anthra shall maintain, and shall cause its Contract
Manufacturers and other agents to maintain, all
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records necessary to comply with all applicable laws, rules and regulations in
the Territory relating to the manufacturing and storage of the Product in bulk
or finished form. All such records shall be maintained for such period as may be
required by law, rule or regulation; provided, however, that all records
relating to the manufacture, stability and quality control of each batch of the
Product shall be retained at least until the first anniversary of the end of the
approved shelf life for all Product from such batch.
ARTICLE IV
QUALITY CONTROL
4.1 Product Specifications Amendments. Anthra reserves the right to
amend and/or supplement the Product Specifications unilaterally for the purpose
of complying with GMPs or other applicable laws, regulations or guidelines.
Further, Anthra may amend and/or supplement the Product Specifications in order
to incorporate Improvements or for any other reasonable business purpose,
subject to the grant of any FDA approvals required by applicable law in
connection with any such changes, with the prior written consent of Medeva,
which consent shall not be unreasonably withheld; provided, however, that
failure to agree on royalty terms with respect to any such Improvement pursuant
to Section 12.1 shall be deemed reasonable cause for withholding such consent.
4.2 Nonconformance.
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(a) In the event that Medeva determines that any shipment of
Product does not conform to the Product Specifications or the relevant Medeva
purchase order, then Medeva shall give Anthra notice thereof (including a sample
from such shipment) within fifteen days after receipt thereof, in the case of
non-conformities that may be ascertained by the exercise of reasonable diligence
(which shall not include laboratory testing or other chemical analysis, unless
required by the NDA) upon receipt thereof, and within fifteen days after
discovery thereof, in the case of other non-conformities (including, without
limitation, non-conformities relating to stability). If Medeva decides to
conduct routine laboratory testing and other chemical analysis of shipments of
Product, it shall conduct such tests and analyses within thirty (30) days after
receipt of the Product. If Anthra confirms such non-conformity, it shall
promptly so notify Medeva. If Anthra does not confirm such non-conformity, it
shall promptly so notify Medeva, and the parties shall submit the disputed
shipment for testing to an independent testing laboratory that is mutually
acceptable to the parties. The findings of the testing laboratory shall be
binding on the parties. The expenses of such testing shall be borne by Anthra if
the testing confirms the non-conformity, and otherwise by Medeva.
(b) If any Product delivered by Anthra hereunder does not
conform to the Product Specifications or
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the relevant Medeva purchase order for any reason other than the willful or
negligent acts or omissions of Medeva or its customers or agents which occur
after the date of shipment thereof by Anthra, Anthra shall credit Medeva with
the costs incurred by Medeva with respect to such non-conforming Product, which
costs shall be deemed equal to the sum of any amounts paid on account of such
Product pursuant to Section 3.11 and any and all transportation and storage
charges incurred by Medeva in connection with such Product. In addition, at
Medeva's option, (i) Anthra shall be relieved of any obligation to deliver any
Product in replacement of such non-conforming Product, or (ii) Anthra shall
replace the non-conforming Product with substitute Product that conforms to the
Product Specifications and purchase order, within ninety (90) days from the date
Medeva notifies Anthra of its election of option (ii) of this Section 4.2, in
which case Medeva shall pay to Anthra any unpaid amounts in respect of the
replacement Product in accordance with Section 3.11 following delivery of the
replacement Product. This remedy shall be in addition to any other rights that
Medeva may have hereunder or by law.
4.3 Manufacturing Process. In the event that any process event shall
occur in the manufacturing of any batch of Product, which event is likely
materially to affect the safety, efficacy or regulatory status of the Product,
then Anthra shall notify Medeva as soon as reasonably possible.
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Medeva and Anthra shall consult with each other as to the disposition of all
affected batches of the Product. Anthra agrees to report to Medeva, on an annual
basis, any atypical process events that are unlikely materially to affect the
safety, efficacy or regulatory status of the Product. Further, to the extent of
its knowledge, Anthra agrees to provide Medeva with notice of any out of process
steps which occur in the manufacture of Product. No Product may be reworked
unless the rework procedure is in conformity with FDA guidelines, except with
the prior written consent of Medeva, which consent may not be unreasonably
withheld.
4.4 Inspection. Anthra shall permit Medeva representatives to enter
Anthra's facilities and, to the extent permitted by the Contract Manufacturing
Agreements (which access Anthra agrees to use commercially reasonable efforts to
negotiate on behalf of Medeva), to enter the facilities of the Contract
Manufacturers in the company of, and separately from, Anthra representatives,
all upon reasonable prior notice and at reasonable intervals, during normal
business hours for the purpose of making quality assurance audits of those
facilities and of the procedures and processes used by Anthra and such Contract
Manufacturers in storing, manufacturing and shipping AD 32 and the Product. In
the event that Anthra shall enter into contracts with other vendors with respect
to Product to be supplied to Medeva
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pursuant hereto, or AD 32 to be used in the manufacture of such Product, then
Anthra shall use commercially reasonable efforts to negotiate, mutatis mutandis,
such rights of access for Medeva with respect to such vendors' facilities.
4.5 Safety Procedures. Anthra shall maintain and enforce safety
procedures for the handling and manufacture of the Product that comply in all
respects with Anthra's NDA and all federal, state and local occupational safety
and health requirements.
4.6 Government Inspection. Anthra agrees to advise Medeva
immediately of any proposed or announced visit or inspection, and as soon as
possible but in any case within twenty-four (24) hours (or, in the case of a
third party facility, within twenty-four (24) hours after receipt by Anthra of
notice thereof), of any unannounced visit or inspection, by any governmental or
regulatory agent of any facilities used by Anthra in the performance of its
obligations hereunder, including the processes or procedures used at such
facilities in the manufacture of Product. Anthra shall provide Medeva with a
reasonable description of each such visit or inspection promptly (but in no
event later than five (5) calendar days) thereafter, and with copies of any
letters, reports or other documents (including 483's) issued by any such agents
that relate to the Product or such facilities, processes or procedures. Medeva
shall also be
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entitled to review Anthra's responses to any such reports and communications
prior to their submission, if practicable, and, insofar as timely received,
Medeva's reasonable views and requests shall be taken into account prior to
submission of such reports and communications to the relevant agency. Anthra
shall also provide Medeva with the notice, information, documentation, and
opportunity to comment provided for above with respect to the Contract
Manufacturers, to the extent provided for in the relevant Contract Manufacturing
Agreement (which provisions Anthra shall use commercially reasonable efforts to
negotiate on behalf of Medeva). In the event that Anthra shall enter into
contracts with other vendors with respect to Product to be supplied to Medeva
pursuant hereto, or AD 32 to be used in the manufacture of such Product, then
Anthra shall use commercially reasonable efforts to negotiate, mutatis mutandis,
such rights for Medeva with respect to such vendors.
ARTICLE V
LICENSE GRANTS
5.1 Grants. Subject to the terms and conditions of this Agreement,
including without limitation Section 6.8, the parties hereby grant to Medeva an
exclusive, royalty-bearing license in the Territory under the Product Know-how
to Market, sell, distribute, and have Marketed, sold, and distributed the
Product for the CIS and Papillary Indications. Anthra agrees
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not to license any third party to Market, sell or distribute AD 32 in the
Territory, for pharmaceutical use in humans.
5.2 Sublicenses. Medeva shall have the right to grant to third
parties (each, a "Sublicensee") sublicenses under the licenses granted in
Section 5.1, subject to the prior written consent of Anthra, which shall not be
unreasonably withheld. Failure to approve or disapprove a proposed Sublicensee
within ten (10) business days after receipt by Anthra of a request for consent
from Medeva shall be deemed approval.
5.3 Other Countries. Anthra retains the right to grant licenses for
the sale, marketing and distribution of the Product in all countries outside the
Territory; provided, however, that Anthra agrees to impose on each such
licensee, to the extent permitted by applicable law, the covenants set forth in
Section 6.9, mutatis mutandis; ***.
5.4 Trademarks.
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(a) Subject to the terms and conditions of this Agreement,
Medeva hereby grants to Anthra a non-exclusive license (i) in the Territory, to
use the Trademarks to Market and have Marketed the Product for the CIS
Indication and the Papillary Indication, if Anthra shall have co-promotion
rights pursuant to Section 6.8, and (ii) outside the NAFTA Area, to use the
Trademarks to Market and have Marketed all formulations of AD 32, for all
indications. The license granted pursuant to clause (i) above is royalty-free,
and the license granted pursuant to clause (ii) shall be royalty-bearing, on
terms and conditions to be mutually agreed by the parties.
(b) Anthra shall be responsible for ensuring that all
labelling of the Products in the Territory complies with Anthra's NDA and all
applicable FDA regulations and does not cause the Product to which it relates to
be misbranded or violative of any Federal, State or local law, regulation or
rule. Subject to the preceding sentence, all such labelling shall contain one or
more Trademarks and such Other Trademarks as specified by Medeva in writing.
Nothing contained herein shall give Anthra any right to use any Other Trademark
except on the Products in the Territory as specified by Medeva in writing.
5.5 Technical Assistance. Upon the written request of Medeva, Anthra
shall provide Medeva with all information
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and reasonable technical assistance related to the Product Know-how as Medeva
may reasonably require in order to exploit the licenses granted in Sections 5.1
and 5.2.
ARTICLE VI
MARKETING AND SALE OF THE PRODUCT
UNDER THE LICENSING ARRANGEMENT
6.1 General.
(a) Subject to the grant of the license under Article V,
Medeva shall use commercially reasonable efforts to Market and sell the Product
in the Territory for the CIS Indication and Papillary Indication, as approved by
the FDA from time to time. Medeva shall commence Launch of the Product as soon
as practicable after the approval of the NDA for the Product for the CIS
Indication or the Papillary Indication, whichever shall occur first, but in no
event later than one hundred twenty (120) days after such approval, if Anthra
shall have timely supplied Medeva with all Product theretofore ordered in
accordance with Article III. All Product sales in the Territory shall be made
by, and for the account of, Medeva or its Affiliates or Sublicensees, as the
case may be. Anthra shall have no right to sell or distribute Product in the
Territory during the term of this Agreement.
(b) Subject to such exceptions as the parties may mutually
agree upon pursuant to Section 6.8, Medeva shall bear all costs and expenses
arising out of or relating to the Marketing, distribution and sale of the
Product in the
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Territory.
6.2 Compliance. Medeva shall comply with all applicable laws and
regulations in conducting the Marketing and sale of the Product in the
Territory, including without limitation all requirements as to pre-Marketing
approval of Product labelling.
6.3 Trademarks. Medeva shall be responsible for the selection,
registration and maintenance of all the Trademarks. Except as otherwise provided
in Sections 5.4 and 15.7, Anthra shall not acquire or assert any right, title,
and interest in and to any Trademark or Other Trademark.
6.4 Price of the Product. Medeva shall use commercially reasonable
efforts to obtain the best in-market price for the Product in the Territory
under the prevailing marketing conditions; provided, however, that nothing in
this Section 6.4 shall be deemed to restrict the freedom of Medeva to determine
in its sole discretion prices for the Product for approved indications in the
Territory; and provided, further, that in evaluating the best in-market price
Medeva need not make such determinations on an indication by indication basis
but may have due regard to the deleterious effects that pricing differentials
among the indications might have on any particular indication. Medeva shall keep
Anthra informed of its efforts in this regard in response to Anthra's reasonable
written requests from time to time.
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6.5 Marketing Materials. Medeva shall develop, at its sole expense,
appropriate Marketing and promotional materials for the Product for the CIS
Indication and the Papillary Indication in the Territory for use by Medeva, its
Affiliates and Sublicensees. Medeva agrees to provide Anthra with a sample copy
of each such item at least ten (10) business days before making use thereof, and
agrees to use such item only after receiving the written approval of Anthra;
provided, however, that failure by Anthra to approve or disapprove any such item
within ten (10) business days after Medeva has provided such item to Anthra
shall be deemed to be approval thereof. Medeva shall not, and shall cause its
Affiliates and Sublicensees not to, use any materials for the Marketing the
Product other than materials approved by Anthra for that purpose.
6.6 Product Liability Insurance. Medeva shall maintain, with an
insurance carrier reasonably acceptable to Anthra, at the sole expense of
Medeva, product liability insurance relating to the Product that is comparable
in type and amount to the insurance it maintains with respect to its most
similar other pharmaceutical products that are Marketed, distributed and sold in
the Territory.
6.7 Competition. Notwithstanding the exercise of the Purchase Option
under Section 2.4, each party agrees that, during the term of this Agreement and
for a period of one (1)
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year after the termination or expiration hereof, it shall not, and shall not
permit any of its Affiliates or Sublicensees to, develop, Market or sell in the
Territory any anthracycline (other than the Product, pursuant to this Agreement)
that is intended to receive, or has received, marketing approval in the
Territory for any urological indication; and provided, further, that this
Section 6.7 shall not apply to a party in the event that it shall terminate this
Agreement pursuant to Section 15.2. The parties acknowledge that all
restrictions contained in this Section 6.7 are reasonable, valid and necessary
for the adequate protection of the Product and the parties' rights therein.
6.8 Co-Promotion.***
6.9 Activities Outside the Territory. Medeva agrees that it will not
(i) seek approval, directly or indirectly, from the relevant regulatory
authorities, to (A) qualify facilities to manufacture or finish the Product
outside the Territory or (B) label or relabel the Product in a manner that would
permit it to be marketed or sold outside the Territory, or (ii) sell or export
the Product to any third party for use or resale outside the Territory, (iii) or
sell the Product to any third party that it has reason to believe intends to
resell or export the Product outside the Territory.
ARTICLE VII
DEVELOPMENT FEES, LICENSE FEES AND ROYALTIES
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7.1 Development Fees. For use in connection with, and for purposes
of the continued development of the Product, Medeva agrees to pay to Anthra the
following amounts:
(a) a single payment of Eight Million U.S. Dollars
(US$8,000,000) upon the signing of this Agreement;
(b) ***.
7.2 License Fees. In consideration of the license granted in
Article V, ***.
7.3 Royalties.
(a) Subject to Section 7.3(b), Medeva shall pay Anthra a
royalty equal to ***.
7.4 Payment. All development fees, license fees and royalties
payable by Medeva under this Article VII shall be paid in U.S. Dollars by wire
transfer of immediately available funds to *** or such other bank account as
Anthra may hereafter designate in writing not less than five (5) business days
before payment is due. Medeva shall pay all amounts owed to Anthra pursuant to
Section 7.3 on a quarterly basis within thirty (30) days following the end of
each full or partial Calendar Quarter during the term of this Agreement. Each
such payment shall be accompanied by written report, certified by an officer of
Medeva, providing a detailed breakdown of the Net Sales, and the components
thereof, for such Calendar Quarter.
7.5 Equity Interest. In the event that the FDA shall have granted
neither the CIS Approval nor the Papillary Approval by December 31, 2002, then,
in Medeva's sole discretion, Medeva shall have the right, exercisable upon
written notice in consideration of the payment made pursuant to Section 7.1(a)
and without payment of additional compensation, to acquire that number of shares
of the common stock of Anthra equal to twenty percent (20%) of the then-current
issued and outstanding voting equity securities of
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Anthra.
7.6 Withholding Taxes. Medeva shall pay any and all withholding
taxes or similar charges imposed by any government in the Territory on any
amounts due to Anthra from Medeva pursuant to this Article VII to the proper
taxing authority, and proof of payment of such taxes or charges shall be secured
and sent to Anthra as evidence of such payment. All amounts paid by Medeva
pursuant to this Section 7.6 shall be paid for the account of Anthra and
deducted from the amounts due from Medeva to Anthra pursuant to this Article.
ARTICLE VIII
EXECUTIVE MANAGEMENT COMMITTEE
8.1 Formation of the EMC. In order to facilitate the exchange of
information between the parties relating to their activities pursuant to this
Agreement, the parties agree to establish an Executive Management Committee (the
"EMC") comprised of six individuals. Medeva and Anthra shall each appoint three
members of the EMC. Each member of the EMC shall be an employee or member of the
Board of Directors of the party that appointed such member, or an Affiliate
thereof. Initial appointments shall be made within fourteen (14) days of the
date of this Agreement. A member of the EMC may be removed at any time, with or
without cause, by the party that originally appointed such member. A member of
the EMC shall serve until a successor is named by the party that appointed
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such member.
8.2 Authority of the EMC. Without limitation of the other provisions
hereof, the EMC shall (a) monitor and review the progress of the Development
Activities conducted by Anthra pursuant to this Agreement, (b) monitor and
review the progress of all Product Marketing and sales activities conducted by
Medeva and Anthra pursuant to this Agreement, (c) determine the level of
inventory of AD 32 to be maintained by Anthra pursuant to Section 3.2, (d)
determine whether Anthra may file an NDA prior to the expiration of the
sixty-day period after Anthra provides Medeva with a copy of the CMC section
thereof pursuant to Section 2.6, (e) determine whether, upon the written request
of Anthra, AD 32 purchased pursuant to Section 3.2(a) may be released from
Inventory upon repayment by Anthra to Medeva of the relevant Advance(s) pursuant
to Section 3.2(c), and (f) take such other actions as the parties may mutually
agree, except that the EMC may not take any action that would conflict with any
provision of this Agreement. Except as set forth in clause (c) of the preceding
sentence, it is not intended that the EMC have any power or authority to direct
the conduct of the affairs or the decision-making of either party hereto. Each
party to this Agreement shall retain the rights, powers, and discretion granted
to it under this Agreement, and no such rights, powers, or discretion shall be
delegated to or vested in the
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EMC unless such delegation or vesting of rights is expressly agreed to by the
parties in writing. The EMC shall not have the power to amend or modify this
Agreement, which may only be amended or modified as provided in Section 16.12.
8.3 Procedural Rules of the EMC.
(a) The EMC shall adopt such standing rules as shall be
necessary for its work.
(b) A quorum of the EMC shall consist of two members, provided
that at least one member appointed by each party is present. Members of the EMC
may attend a meeting either in person or by telephone conference call.
Representation by proxy shall not be allowed.
(c) The EMC may take action (1) by agreement of all the
members present at a meeting at which a quorum exists, or (2) by written
resolutions approved in writing by all of the members.
(d) The EMC shall have a chairperson and a secretary. The
first chairperson shall be a member of the EMC designated by Anthra. Each
chairperson shall serve a one-year term, and the office shall alternate between
a member appointed by Anthra and a member appointed by Medeva. The first
secretary shall be a member of the EMC designated by Medeva. Each secretary
shall serve a one-year term, and the office shall alternate between a member
appointed by Medeva and a member appointed by Anthra.
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(e) The EMC shall meet quarterly or more or less frequently as
mutually agreed upon by the members, at times and places to be mutually agreed
upon. Thirty (30) calendar days' prior written notice of any such meeting shall
be provided to the members, unless such notice is waived in writing by the
members.
ARTICLE IX
REPORTING
9.1 Reporting by Parties. The parties hereto shall use their
commercially reasonable efforts to keep each other informed of their activities
pursuant to this Agreement, including without limitation material developments
relating to the performance of their respective obligations under this
Agreement.
9.2 Record Keeping.
(a) Medeva shall, and shall cause its Affiliates and
Sublicensees to, keep complete and accurate books and records pertaining to the
sale and use of the Product, including the names and addresses and purchase
order details for each customer to which it sells the Product. Such books and
records shall be retained for at least one (1) year after the calendar year to
which they relate, or for such longer period if and as required by applicable
law.
(b) Anthra shall keep complete and accurate books and records
pertaining to Development Activities, to its
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purchases of AD 32 and the Product, to any co-promotion activities it shall
perform hereunder, and to any payments to Anthra in connection with the Product
Know-how, including but not limited to royalty payments. Such books and records
shall be retained for at least one (1) year after the calendar year to which
they relate, or for such longer period if and as required by Section 3.13 or
applicable law.
9.3 Audit of Records. At the request of either party, the other
party shall, and shall cause its Affiliates (and, in the case of Medeva, its
Sublicensees, and in the case of Anthra, the Contract Manufacturers, where
permitted by the relevant Contract Manufacturing Agreement (which provision
Anthra shall use commercially reasonable efforts to negotiate on behalf of
Medeva)) to, permit the requesting party and its representatives, at reasonable
times and upon reasonable notice, to examine and audit the books and records
maintained by such other party pursuant to this Article IX or Section 3.13;
provided, however, should Anthra wish to audit Medeva's reported Net Sales,
Anthra shall have the right to nominate a firm of independent certified public
accountants reasonably acceptable to Medeva to have access to the records of
Medeva during reasonable business hours for the purpose of verifying, at
Anthra's expense, Medeva's reported Net Sales of the Products. If the audit
shall establish inaccuracies in Anthra's favor of at least ten percent (10%)
from the Net
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Sales reported by Medeva, then the cost of such audit shall be reimbursed to
Anthra by Medeva. If the audit establishes that either party underpaid or
overpaid the other party any amount, the appropriate party shall promptly pay
the other the full amount of such underpayment or overpayment.
ARTICLE X
ADVERSE EVENT AND OTHER INFORMATION EXCHANGE
10.1 Notification. From and after the date of receipt by Anthra of
notice of approval of the NDA for the Product for any indication, and receipt by
Medeva of notice from Anthra of such approval, each party shall (i) provide
prompt written notice to the other party of information in or coming into its
possession or control concerning side effects, injury, toxicity or sensitivity
reaction ("Adverse Events") associated with commercial and clinical uses,
studies, investigations or tests of the Product (animal or human), whether or
not determined to be attributable to the Product, and whether arising out of
clinical studies or Marketing and sale of the Product, (ii) notify the other
party's responsible drug safety department by telephone and facsimile within
twenty-four (24) hours after such party first becomes aware of any Adverse Event
that gives cause for concern or is unexpected or that is fatal, life-threatening
(as it occurred), permanently disabling, requires (or prolongs) in-patient
hospitalization, represents a significant hazard, or
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is a cancer or a congenital anomaly or represents an overdose, or any other
circumstance that might necessitate a recall, expedited notification of the FDA
or any other relevant regulatory authorities or a significant change in the
label of the Product, including without limitation any deviation from the
specified environmental conditions for shipping or storage of Product, and (iii)
exchange information semi-annually in writing concerning other complaints, other
Adverse Events regarding the Product, and other deviations from specified
environmental conditions for shipping or storage of Product. Each party shall
make such reports as are necessary to comply with laws and regulations
applicable to it, at its sole expense.
10.2 Material Communications. Without limitation of any other
provision hereof (including Section 4.6), each party shall, within five (5)
business days, provide notice to the other party of any material communications
with any governmental agency concerning the Product in connection with any
indication for which an NDA has been filed for the Product in the Territory,
including, without limitation, Adverse Event reports and safety reports. Copies
of all such material communications shall be attached to the notice sent
pursuant to this Section 10.2. Notwithstanding the foregoing, in the event of a
communication or directive from a regulatory authority commencing or threatening
seizure of Product or
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other removal from the market of an approved Product, the party receiving such
information shall transmit such information to the other party within
twenty-four (24) hours.
ARTICLE XI
PRODUCT RECALL
11.1 Notification and Recall. In the event that any governmental
agency or authority issues or requests a recall or takes similar action in
connection with the Product, or in the event either party determines that an
event, incident or circumstance has occurred which may result in the need for a
recall or market withdrawal, the party notified of or wishing to call such
recall or similar action shall, within twenty-four (24) hours, advise the other
party thereof by telephone or facsimile, after which the parties shall promptly
discuss and work together to effect an appropriate course of action; provided,
however, that either party may initiate a recall or market withdrawal thereafter
if it deems such action necessary or appropriate. Notification to the FDA and
compliance with applicable law in conducting such recall shall be the
responsibility of Anthra.
11.2 Recall Expenses. Each of the parties hereto shall bear the full
expenses of both parties incurred in any recall resulting from breach of its
respective warranties or obligations hereunder. Such expenses of recall shall
include, without limitation, the expenses of notification and
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destruction or return of the recalled Product and the sum paid for the recalled
Product. Without limitation of the foregoing, if the failure to meet applicable
legal requirements is caused by the act or omission of Anthra, Anthra shall
further reimburse Medeva for (a) any amounts paid to Anthra by Medeva under this
Agreement (but excluding the development fees and license fees set forth in
Sections 7.1 and 7.2) for recalled Products and for all Products that cannot be
shipped by Medeva due to the condition requiring the recall and (b) all
liabilities incurred by Medeva by virtue of being unable to meet its supply
obligations to its customers because Products could not be timely shipped by
Anthra or Medeva due to the condition requiring recall. In the event, however,
that a recall is partially caused by Anthra's actions or omissions and partially
caused by Medeva's actions or omissions, then each party shall be responsible
for its proportionate share of the recall expenses based on its proportionate
share of causation.
ARTICLE XII
INTELLECTUAL PROPERTY RIGHTS
12.1 Ownership of Product Know-how. Anthra shall have the sole right
to file for, obtain, maintain, register and extend patent protection for the
Product Know-how, and to control the prosecution of applications therefor. If,
after a written request from Medeva, Anthra decides not to file for,
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obtain, maintain, register or extend patent protection for the Product Know-how
in the Territory, Medeva shall have the right, at its own expense, to take any
such action in the name of Anthra. For the avoidance of doubt, nothing in this
Section 12.1 shall be construed to require Medeva to assign to Anthra the rights
to any Improvements to AD 32, the Product or the Product Know-how that Medeva
may develop; provided, however, that if, during the term of this Agreement,
Medeva or any of its Affiliates or Sublicensees develops any such Improvements,
Medeva shall so notify Anthra and shall grant, or shall cause such Affiliate or
Sublicensee, as the case may be, to grant to Anthra (i) a royalty-free,
perpetual, non-exclusive license to use such Improvements in the Territory in
connection with the exercise of any co-promotion rights Anthra may have pursuant
to Section 6.8, and (ii) a royalty-bearing license to use such Improvements
elsewhere, and in the Territory for other purposes, on such terms and
conditions, if any, as the parties may mutually agree. Further, if during the
term of this Agreement, Anthra or any of its Affiliates develops any
Improvements to the Product or the Product Know-how, Anthra shall so notify
Medeva and shall grant, or shall cause such Affiliate to grant, to Medeva a
royalty-bearing license to use such Improvements in the Territory, on such terms
and conditions, if any, as the parties may mutually agree; provided, however,
that such license shall be royalty-
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free to the extent that such Improvement shall consist of a change in Product
Specifications made by Anthra pursuant to Section 4.1 in order to comply with
GMP's, applicable laws, regulations or guidelines.
12.2 Ownership of Filings and Approvals. Subject to the rights
granted to Medeva hereunder, Anthra shall own all rights, title and interest in
(a) all NDAs and other submissions by Anthra to governmental authorities made
pursuant to this Agreement, and (b) all approvals made or granted with respect
to the Product in the Territory.
12.3 Ownership of Data. Subject to the rights granted to Medeva
hereunder, Anthra shall own all rights, title and interest to the preclinical
and clinical data arising out of the Development Activities.
12.4 Enforcement of Intellectual Property Rights.
(a) The parties shall promptly report in writing to each other
any known or suspected activity of any kind that may constitute an infringement,
violation, unauthorized use or misappropriation of the Product Know-how in the
Territory. Within sixty (60) days after Anthra becomes, or is made, aware of any
of the foregoing, it shall decide whether or not to initiate an infringement or
other appropriate action or suit and shall advise Medeva of its decision in
writing. Failure to so notify Medeva within such sixty (60) day period shall be
deemed a decision not to
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initiate an infringement or other appropriate suit.
(b) Provided that Anthra shall have advised Medeva of its
decision to file suit within the sixty (60) day period provided in Section
12.4(a), Anthra shall have the right to institute proceedings to prevent any
such infringement, violation, unauthorized use or misappropriation or to take
all actions to defend against, and subject to the last sentence of Section
12.4(c), settle or compromise any such action or suit. Anthra shall keep Medeva
promptly informed of, and shall from time to time consult with Medeva regarding,
the status of any such suit and shall provide Medeva with copies of all
documents filed in, and all written communications relating to, such suit.
(c) Anthra shall select counsel for any suit referred to in
Section 12.4(b) and shall pay all expenses of the suit, including, without
limitation, attorneys' fees and expenses and court costs. Any damages,
settlement fees or other consideration for infringement received as a result of
such litigation shall be allocated first to reimburse Anthra for any costs and
expenses incurred in connection with such litigation and thereafter shared by
Anthra and Medeva, with Anthra receiving that proportion which corresponds to
its royalty percentage then in effect, and Medeva receiving the balance. Medeva
shall cooperate reasonably with Anthra in prosecuting such action, defending
against such action, claim
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or dispute, or otherwise asserting its rights against third parties at Anthra's
request and at Anthra's expense. Medeva shall also have the right to participate
and be represented in any such suit by its own counsel at its own expense.
Anthra shall not settle any such suit without Medeva's written consent if such
settlement would adversely affect Medeva's rights under this Agreement.
(d) If within sixty (60) days after receiving notice of a
continuing infringement or violation of any rights in the Product Know-how or of
any third party action, claim or dispute based upon or arising out of the rights
in the Product Know-how, Anthra fails to advise Medeva in writing of its
decision whether to commence a lawsuit directed towards restraining or enjoining
such infringement or violation or to take other diligent actions to cause the
cessation of or defend against, settle or compromise such action, claim or
dispute, or shall notify Medeva of its decision not to do so, then Medeva may
take such legal or other actions as it deems necessary or appropriate to prevent
or restrain such infringement or violation or to defend against, settle or
compromise such action, claim or dispute, in which event all damages or
settlement proceeds thereunder shall be allocated first to reimburse Medeva for
any costs and expenses incurred in connection with such litigation and
thereafter shared by Anthra and Medeva, with Anthra receiving that proportion
which
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corresponds to its royalty percentage then in effect, and Medeva receiving the
balance. To the extent not recovered in the manner set forth in the preceding
sentence, Medeva may set off its reasonable costs and expenses incurred in
connection therewith against future development fees, license fees and royalty
payments due Anthra under this Agreement as such development fees, license fees
and royalty payments become due (up to a maximum total credit in any calendar
year of one-quarter of such amount). Notwithstanding the foregoing, Medeva shall
not be entitled to settle any such claim or action without Anthra's written
consent if such settlement would adversely affect Anthra's rights in the Product
Know-how. Anthra agrees to cooperate reasonably in any such legal or other
action initiated by Medeva, at Medeva's request and at Medeva's cost.
(e) This subsection (e) shall apply only with respect to
infringement of the Trademarks and to the Other Trademarks. Anthra agrees to
give Medeva prompt written notice of any unlicensed use by third parties of
which Anthra has knowledge, throughout the world with respect to Other
Trademarks, and throughout the Territory with respect to the Trademarks, and
further agrees not, without Medeva's prior written consent, to bring or cause to
be brought any criminal prosecution, lawsuit or administrative action for
infringement, interference with or violation of any rights
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occurring anywhere in the world with respect to the Other Trademarks and
occurring in the Territory with respect to the Trademarks. Anthra agrees to
cooperate with Medeva, and if necessary, to be named by Medeva as a sole
complainant or co-complainant in any action against an infringer of the
Trademarks or Other Trademarks, and, notwithstanding any right of Anthra to
recover same, legal or otherwise, Anthra agrees to pay to Medeva, and hereby
waives all claims to, all damages or other monetary relief recovered in such
action by reason of a judgment or settlement whether or not such damages or
other monetary relief, or any part thereof, represent or are intended to
represent injury sustained by Anthra. In any such action against an infringer,
Medeva agrees to reimburse Anthra for all costs and expenses incurred at
Medeva's request, including attorneys' fees and expenses if Medeva has requested
Anthra to retain counsel.
12.5 Offset for Infringement. If Medeva is required, at any time
during the term of this Agreement, to pay any royalty or damages to any person
or entity as a result of a judgment, settlement or agreement relating to the
past and/or future sale of the Product in the Territory ("Third Party
Payments"), except insofar as such Third Party Payments are attributable to the
willful misconduct, negligence, or breach of this Agreement by Medeva, its
Affiliates or Sublicensees, then Medeva may offset the amount of such Third
Party Payments
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actually paid by Medeva against future development fees, license fees and
royalty payments due Anthra under this Agreement as such development fees,
license fees and royalty payments become due (up to a maximum total credit in
any calendar year of one-quarter of such amount). Should such future development
fees, license fees and royalty payments prove insufficient to cover all Third
Party Payments (as determined at the end of any calendar year during the term
hereof), Medeva may assert such further rights as it may have under Article XIV
in respect of the shortfall.
ARTICLE XIII
CONFIDENTIALITY
13.1 Confidential Information. Except to the extent permitted by
this Agreement or as otherwise agreed by the parties in writing, the parties
agree that, at all times during the term of this Agreement and for a five (5)
year period following termination or expiration hereof, the party receiving
information (the "Receiving Party") shall keep completely confidential, shall
not publish or otherwise disclose and, except as permitted hereby, shall not use
directly or indirectly for any purpose any Confidential Information (as defined
in Section 13.2) furnished to it by the other party (the "Disclosing Party")
pursuant to this Agreement or otherwise relating to any transaction contemplated
hereby, including information heretofore
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furnished to it.
13.2 Certain Definitions. For purposes of this Article XIII,
"Confidential Information" means any and all non-public, proprietary or
confidential information and data (including all documents, reports, analyses,
compilations, studies and data bases containing such information or data) of
either party hereto or its Affiliates, whether disclosed by such party to the
other prior to or after the date hereof. Confidential Information shall also
include information which is designated as confidential in writing by the
Disclosing Party, whether by letter or by the use of an appropriate stamp or
legend, prior to or at the time any such information is disclosed by the
Disclosing Party to the Receiving Party; provided further that information which
is orally or visually disclosed, or is disclosed in writing without an
appropriate letter, stamp, or legend, shall constitute Confidential Information
if the Disclosing Party, within thirty (30) days after such disclosure, delivers
to the Receiving Party a written document or documents describing the
information and referencing the place and date of such oral, visual, or written
disclosure and the names of the persons to whom such disclosure was made.
Notwithstanding anything to the contrary in this Agreement, Confidential
Information shall not include information which the Receiving Party can
establish by competent proof,
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(a) became publicly known other than through a breach of this
Agreement by the Receiving Party, its Affiliates, or their officers, employees,
agents or consultants; or
(b) was in the possession of the Receiving Party, without
obligation of confidentiality prior to the disclosure thereof, or is
subsequently disclosed to the Receiving Party by a third party who did not
receive it under any obligation of confidentiality; or
(c) was independently developed by the Receiving Party prior
to disclosure. Confidential Information shall belong to and remain the property
of the Disclosing Party.
13.3 Disclosure of Confidential Information -- Internal. The
Receiving Party shall disclose Confidential Information only to such of the
Receiving Party's or its Affiliates' or Sublicensees' officers, employees,
agents or consultants as is necessary to carry out the purposes of this
Agreement. Each party shall ensure that its, and its Affiliates' and
Sublicensees' officers, employees, agents and consultants are bound by, and take
reasonable efforts to ensure compliance with, the confidentiality terms hereof.
13.4 Disclosure of Confidential Information -- Third Parties. The
Receiving Party may disclose Confidential Information to the extent that such
disclosure is reasonably
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necessary in filing or prosecuting patent applications, pursuing or defending
litigation, or complying with applicable governmental regulations, provided that
if the Receiving Party intends to make any such disclosure, it shall give
reasonable advance written notice to the Disclosing Party of such intention.
Notwithstanding the foregoing, in the event the Receiving Party or anyone to
whom it has transmitted Confidential Information pursuant to this Agreement
becomes legally required to disclose any of the Confidential Information, the
Receiving Party shall provide the Disclosing Party with prompt notice so that it
may seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Agreement. In the event that such protective order
or other remedy is not obtained or that compliance with the provisions of this
Agreement is waived by the Disclosing Party, the Receiving Party shall furnish
only that portion of the Confidential Information which is legally required and
shall exercise its reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the information required to be
disclosed.
Furthermore, nothing in this Article XIII shall be construed to
preclude either party from disclosing such information to such third parties as
may be necessary in connection with the development and commercialization of the
Product as contemplated by this Agreement, including, without
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limitation, subcontracting and sublicensing transactions in connection
therewith, provided that the Receiving Party shall in each case obtain from the
proposed third party recipient a written confidentiality undertaking containing
confidentiality obligations no less onerous than those set forth in this Article
XIII. Notwithstanding anything in this Article XIII to the contrary, Medeva
shall have the right, subject to Section 6.5, to disclose preclinical and
clinical data and results relating to the Product to qualified medical
professionals for the limited purposes of Marketing the Product and conducting
medical education initiatives reasonably designed to increase Net Sales in the
Territory.
13.5 Care and Return of Confidential Information. The Receiving
Party shall keep Confidential Information belonging to the Disclosing Party in
appropriately secure locations. Upon the expiration or termination of this
Agreement, subject to Section 15.7 and 15.8, any and all Confidential
Information possessed in tangible form by a Receiving Party, its Affiliates or
Sublicensees, or its or any of their officers, employees, agents or consultants
and belonging to the Disclosing Party, shall, upon written request, be
immediately returned to the Disclosing Party (or destroyed if so requested) and
not retained by the Receiving Party, its Affiliates or Sublicensees, or any of
their officers, employees, agents or consultants, provided however
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that the Receiving Party required to return Confidential Information may keep a
copy thereof for archival purposes but only in one restricted, secure area, and
provided, further however, that any Confidential Information required to be kept
and retained with respect to FDA rules, regulations and procedures shall be
retained, stored and disposed of according to such FDA rules, regulations and
procedures.
13.6 Use of Names. Except as required for Product labelling, neither
party to this Agreement shall use the name of the other in any public
announcement, press release or other public document without the written consent
of such other party.
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ARTICLE XIV
WARRANTIES; INDEMNITIES
14.1 Representations and Warranties. Each party represents and
warrants to the other party as follows: (i) it has full corporate power and
authority and has taken all corporate action necessary to enter into and perform
this Agreement; (ii) the execution and performance by it of its obligations
hereunder will not constitute a breach of, or conflict with, any agreement or
arrangement, including without limitation its certificate of incorporation or
by-laws, whether written or oral, by which it is bound; and (iii) this Agreement
is its legal, valid and binding obligation, enforceable in accordance with the
terms and conditions hereof.
14.2 Warranties of Anthra. Anthra represents and warrants to Medeva,
in addition to the warranties set forth in Section 3.10, that: (i) the
execution, delivery and performance by Anthra of this Agreement does not
contravene or constitute any default under its certificate of incorporation or
by-laws, any applicable law or regulation or any judgment, injunction, order or
decree binding upon Anthra or to which AD 32 or the Product is subject or any
indenture, bank loan, credit or other agreement binding upon Anthra or to which
AD 32 or the Product is subject, (ii) Anthra has the right, power and authority
to grant the license set forth in Section 5.1, (iii) Anthra has conducted or has
caused its contractors
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or consultants to conduct, and will in the future conduct, the preclinical and
clinical studies of the Product in accordance with known or published standards
of the FDA, (iv) Anthra has employed and will in the future employ individuals
of appropriate education, knowledge, and experience to conduct or oversee the
conduct of the clinical and preclinical studies of the Product, (v) Anthra and
its Contract Manufacturer(s) are and will remain in compliance with all laws,
regulations, ordinances, orders, injunctions, decrees and requirements
applicable to the manufacture, supply and sale of the Product, and Anthra will
maintain in effect all governmental permits, licenses, orders, applications and
approvals necessary to manufacture, supply and sell the Product and will
manufacture and supply all Product in accordance with the same; (vi) all
labelling for Product supplied by Anthra hereunder will comply with the
applicable NDA and all applicable requirements of the FDA; (vii) Anthra
maintains and shall maintain throughout the term of this Agreement a work force
suitably qualified and trained, and facilities and equipment sufficient, to
enable Anthra to perform its obligations hereunder; (viii) to the best knowledge
of Anthra, there are not now nor have there been over the last five years any
lawsuits, arbitrations, legal or administrative or regulatory proceedings,
charges, complaints or investigations by the FDA, DEA, Department of Justice,
any state regulatory agency or any other person or
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entity threatened, commenced or pending against Anthra, or any other person,
relating to AD 32; (ix) the exercise by Medeva of its rights under the licenses
granted in Article V will not infringe any rights owned by any other person and
there is no pending or, to the best of Anthra's knowledge, threatened claim,
litigation or legal proceeding against Anthra contesting the right of Anthra to
distribute, sell or use AD 32 in the Territory; (x) Anthra will terminate any
license agreement that it may enter into with any licensee, for breach by such
licensee of the covenant included in such license agreement pursuant to Section
5.3; (xi) Anthra owns or has the sole right to use in the Territory all rights
in and to the Product Know-how (including without limitation the Anthra Patent
Rights), free and clear of any lien, claim, charge, encumbrance or rights of
third parties; (xii) Anthra has filed a request (the "Request") for designation
of AD 32 as an orphan drug product for the CIS Indication under the Orphan Drug
Act (Pub.L. 97-414) and the Orphan Drug Amendments of 1985 (Pub.L. 99-91)
(collectively, the "Orphan Drug Laws"), as partially codified pursuant to 21
U.S.C. ss.ss. 360bb et seq.; (xiii) to the best knowledge of Anthra, the CIS
Indication afflicts less than 200,000 United States citizens; (xiv) in the event
that the FDA grants the CIS Approval, AD 32 will be designated as an orphan drug
product under the Orphan Drug Laws and will enjoy a marketing exclusivity period
through the
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seventh anniversary of the CIS Approval (or such other period as may be provided
by the Orphan Drug Laws from time to time) for the Product for the CIS
Indication; (xv) prior to and during any such marketing exclusivity period,
Anthra agrees not to give its consent pursuant to 21 U.S.C. ss. 360cc (or
pursuant to any other statute or regulation) for the approval of other NDA's,
the issuance of other certifications or the issuance of other licenses (except
to Medeva or Medeva's Affiliates) for use of AD 32 in the Territory for
pharmaceutical use in humans, without the prior written consent of Medeva, which
consent shall not be unreasonably withheld; (xvi) Anthra will provide copies of
any notices received from the FDA in connection with AD 32 as an orphan drug
product, and if the FDA finds that Anthra is unable to assure availability of
sufficient quantities of AD 32 for the approved indications and provides Anthra
with a notice to such effect, then Anthra will promptly forward to Medeva a copy
of such notice and will respond to the FDA after allowing Medeva a reasonable
period (determined in light of the circumstances) to comment to Anthra on such
notice; (xvii) prior to payment of applicable taxes, Anthra will provide Medeva
with written notice of the amount of any tax credit to which Anthra is entitled
by virtue of AD 32's status as an orphan drug (as set forth in 26 U.S.C. ss.
45C); and (xvii) ***. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE AND IN
SECTION 3.10, ANTHRA
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HEREBY DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO THE PRODUCT KNOW-HOW, AD
32 OR THE PRODUCT, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
14.3 Warranties of Medeva. Medeva represents and warrants to Anthra
that (i) the execution, delivery and performance by Medeva of this Agreement
does not contravene or constitute any default under its certificate of
incorporation or by-laws, any applicable law or regulation or any judgment,
injunction, order or decree binding upon Medeva or any indenture, bank loan,
credit or other agreement binding upon Medeva; (ii) Medeva is and will remain in
compliance with all laws, regulations, ordinances, orders, injunctions, decrees
and requirements applicable to the Marketing and sale of the Product, and,
except as otherwise provided in this Agreement, Medeva will maintain in effect
all governmental permits, licenses, orders, applications and approvals necessary
to Market and sell the Product and will Market and sell the Product in
accordance with the same; and (iii) Medeva maintains and will maintain
throughout the term of this Agreement a work force suitably qualified and
trained, and facilities and equipment sufficient, to enable Medeva to perform
its obligations hereunder.
14.4 Indemnification of Medeva. Anthra shall indemnify Medeva, its
Affiliates and their respective
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directors, officers, employees and agents, and defend and save each of them
harmless, from and against any and all suits, losses, actions, demands,
investigations, claims, damages, liabilities, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) (collectively,
"Losses") arising from or occurring as a result of (i) any breach (or alleged
breach) by Anthra of its representations, warranties, or obligations under this
Agreement, (ii) the manufacture, use, or consumption of the Product, or the
storage of the Product prior to the date of shipment thereof to Medeva, all
except to the extent caused by the negligence or willful misconduct of Medeva or
its officers, agents, employees, Affiliates, Sublicensees or customers, or (iii)
the negligence or willful misconduct of Anthra or its officers, agents,
employees or Affiliates.
14.5 Indemnification of Anthra. Medeva shall indemnify Anthra, its
Affiliates and their respective directors, officers, employees and agents, and
defend and save each of them harmless, from and against any and all Losses
arising from or occurring as a result of (i) any breach (or alleged breach) by
Medeva of its representations, warranties, or obligations under this Agreement,
(ii) the storage or distribution of the Product after the date of shipment
thereof to Medeva, all except to the extent caused by the negligence or willful
misconduct of Anthra or its officers, agents,
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employees, or Affiliates, or (iii) the negligence or willful misconduct of
Medeva or its officers, agents, employees, Affiliates, Sublicensees or
customers.
14.6 Indemnification Procedure.
(a) Each indemnified party (the "indemnitee") agrees to give
the indemnifying party (the "indemnitor") prompt written notice of any Losses or
discovery of fact upon which such indemnified party intends to base a request
for indemnification under Section 14.4 or 14.5. Notwithstanding the foregoing,
the failure to give timely notice to the indemnitor shall not release the
indemnitor from any liability to the indemnitee to the extent the indemnitor is
not prejudiced thereby.
(b) The indemnitee shall furnish promptly to the indemnitor
copies of all papers and official documents in the indemnitee's possession or
control which relate to any Losses; provided, however, that if the indemnitee
defends or participates in the defense of any Losses, then the indemnitor shall
also provide such papers and documents to the indemnitee. The indemnitee shall
cooperate with the indemnitor in providing witnesses and records necessary in
the defense against any Losses.
(c) The indemnitor shall have the right, by prompt notice to
the indemnitee, to participate in the defense of any third party claim forming
the basis of such Losses with
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counsel reasonably satisfactory to the indemnitee, and at the sole cost of the
indemnitor so long as (i) the indemnitor shall promptly notify the indemnitee in
writing (but in no event more than 60 days after its receipt of notice of the
claim) that it will indemnify the indemnitee from and against any Losses the
indemnitee may suffer arising out of the claim and (ii) the indemnitor
diligently participates the defense of the claim.
(d) If the indemnitor participates in the defense of the claim
as provided above the indemnitee may at its option relinquish total control to
the indemnitor or participate in such joint defense with its own counsel who
shall be retained, at the indemnitee's sole cost and expense; provided, however,
that neither the indemnitee nor the indemnitor shall consent to the entry of any
judgment or enter into any settlement with respect to the claim without the
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. If the indemnitee withholds consent in respect
of a judgment or settlement involving only the payment of money and which would
not involve any stipulation or admission of liability or result in the
indemnitee becoming subject to injunctive relief or other relief, the indemnitor
shall have the right, upon notice to the indemnitee within five (5) days of
receipt of the indemnitee's written denial of consent, to pay to the
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indemnitee the full amount of such proposed judgment or settlement, including
all interest, costs or other charges relating thereto, and shall pay all
attorneys' fees incurred to such date for which the indemnitor is obligated
under this Agreement, if any, at which time the indemnitor's rights and
obligations with respect to the claim shall cease.
(e) If the indemnitor does not so participate in the defense
of such claim, the indemnitee may conduct such defense with counsel of its
choice and at the sole cost of the indemnitor and may settle such case as it
shall determine in the exercise of its reasonable discretion.
(f) Except as provided in subsection (e) above, the indemnitor
shall not be liable for any settlement or other disposition of a Loss by the
indemnitee which is reached without the written consent of the indemnitor.
(g) Except as provided above, the costs and expenses,
including fees and disbursements of counsel, incurred by any indemnitee in
connection with any claim shall be reimbursed on a calendar quarter basis by the
indemnitor, without prejudice to the indemnitor's right to contest the
indemnitee's right to indemnification and subject to refund in the event the
indemnitor is ultimately held not to be obligated to indemnify the indemnitee.
14.7 Limitation of Liability. Except as provided in Section 3.8
hereof, Anthra shall not be liable to Medeva for
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any special, incidental, or consequential damages arising out of or related to
any failure by Anthra to supply Product to Medeva pursuant to Article III.
ARTICLE XV
TERM AND TERMINATION
15.1 Term. The term of this Agreement shall commence as of the date
hereof and, unless earlier terminated pursuant to this Article XV, shall expire
upon the later of (i) the last to expire of any Product orphan drug exclusivity
periods granted in the Territory, (ii) the last to expire of any patents from
time to time within the scope of the Product Know-how, and (iii) the twelfth
anniversary of the Launch.
15.2 Termination for Material Breach. This Agreement shall be
subject to termination by either party in the event of a material breach hereof
by the other party with respect to its obligations, which breach is not cured
within sixty (60) days (or, in the case of a payment default, ten (10) business
days) following written Notice thereof by the non-breaching party; provided,
however, this Agreement may be terminated by either party prior to a final
adjudication of the existence of such material breach under Section 16.5 only
(i) in the case of a payment default or (ii) for an "Established Material
Breach" (as defined in Section 15.3), if such Established Material Breach is not
cured within sixty (60) days following receipt of an "Arbitration Decision" (as
defined in Section 15.3).
15.3 Established Material Breach. In order to establish a material
breach (other than a payment default) entitling a party to terminate this
Agreement under the
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proviso to Section 15.2, the party alleging the occurrence of such material
breach (the "Requesting Party") shall submit the issue to an expedited,
non-binding arbitration (the "Material Breach Arbitration") before a mutually
agreed upon arbitrator, or in the event the parties cannot agree upon an
arbitrator, before a panel of three American Arbitration Association approved
arbitrators consisting of one arbitrator chosen by each party and one arbitrator
selected by the two party-chosen arbitrators, (one arbitrator or three
arbitrators, the "Arbitration Panel"). The Arbitration Panel will determine
whether the other party (the "Breaching Party") has committed the material
breach alleged by the Requesting Party, whether the Requesting Party had
committed a prior material breach that justified the subsequent breach by the
Breaching Party, and if the material breach alleged by the Requesting Party has
been committed, whether there is any other evidence which may excuse the
Breaching Party's material breach. An "Established Material Breach" shall mean a
determination (the "Arbitration Decision") by the Arbitration Panel that the
Breaching Party committed the alleged material breach, that the Requesting Party
did not commit a material breach sufficient to excuse the subsequent material
breach by the Breaching Party, and that no other sufficient reason exists to
excuse the breach by the Breaching Party (such sufficiency to be determined by
the Arbitration Panel in its sole discretion). The Arbitration
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Decision shall identify any ways by which the Established Material Breach may be
cured. For purposes of determining an Established Material Breach as
contemplated by Section 15.2, the Arbitration Decision shall be deemed final.
The rules of the American Arbitration Association shall govern any Material
Breach Arbitration.
15.4 Non-Binding, Non-Admissible Arbitration Decision.
Notwithstanding the procedure set forth under Section 15.3 and any resulting
outcome, the parties acknowledge and agree that an Arbitration Decision does not
constitute a binding decision on either party with respect to the existence (or
non-existence) of a breach of the Agreement, nor justify the subsequent
termination of the Agreement (or exercise of some other remedy). Either party
may contest the other party's actions following an Arbitration Decision by
commencing a court action pursuant to Section 16.5. The parties further
acknowledge and agree that the Arbitration Decision, the findings by the
Arbitration Panel and any testimony from the Arbitration Panel (or testimony
from any person or entity appearing before the Arbitration Panel to the extent
that such testimony relates specifically to the Arbitration Decision) shall not
be admissible either as res judicata (or collateral estoppel) or as evidence in
any court proceedings of any nature whatsoever, including without limitation
proceedings related to equitable remedies or
*** CONFIDENTIAL TREATMENT REQUESTED.
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damages; provided further that the fact that an Arbitration Decision was
rendered shall not be given any weight by any fact finder, judge or jury.
15.5 Termination for Other Events. Either party may terminate this
Agreement if, at any time, the other party shall file in any court or agency
pursuant to any statute or regulation of any state or country, a petition in
bankruptcy or insolvency or for reorganization or for an arrangement or for the
appointment of a receiver or trustee of that party or of its assets, or if the
other party shall be served with an involuntary petition against it, filed in
any insolvency proceeding, and such petition shall not be dismissed within sixty
(60) days after the filing thereof, or if the other party shall propose or be a
party to any dissolution or liquidation, or if the other party shall make an
assignment for the benefit of its creditors.
15.6 Partial Termination by Medeva. Medeva may terminate this
Agreement with respect to any indications for the Product pursuant to Section
2.12, by written notice to Anthra.
15.7 Effect of Expiration or Termination. The expiration or
termination of this Agreement shall be without prejudice to any rights or
obligations of the parties that may have accrued prior to such expiration or
termination. Termination of this Agreement in accordance with the
*** CONFIDENTIAL TREATMENT REQUESTED.
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provisions hereof shall not limit remedies which may otherwise be available in
law or equity. Medeva agrees to cooperate with Anthra in transferring to Anthra
or a third party, as Anthra may direct, within thirty (30) days of the
expiration or termination hereof, all data, files and other materials in the
possession or under the control of Medeva, relating to the Product, except to
the extent that Medeva requires such data, files and materials for the purpose
of exercising any rights under this Agreement that may survive such termination
or expiration, in which case Medeva shall provide copies thereof to Anthra or
such third party.
15.8 Survival of Rights and Obligations. The rights and obligations
of the parties under Sections 2.2 and 2.3 (only in the event that the Purchase
Option is not exercised), 2.4, 3.2(c), 3.13, 4.2, 6.7, 7.6, 9.2 and 9.3,
Articles X and XI (with respect to Product supplied by Anthra to Medeva),
Section 12.1, Article XIII, Sections 14.4, 14.5, 14.6, 15.7, 15.8, 16.2, 16.5,
16.6 and 16.7, shall survive the expiration or termination of this Agreement.
In the event of the termination of this Agreement by Medeva pursuant
to Sections 15.2 or 15.5 after the approval of the NDA for the Product for one
or more indications, the license granted to Medeva in Section 5.1 with respect
to such indications, and the royalty obligations of Medeva under Section 7.3,
shall remain in full force and effect through the
*** CONFIDENTIAL TREATMENT REQUESTED.
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twelfth anniversary of the Launch; provided, however, that Medeva may set off
against any such royalty payment obligations any damages that Medeva may have
incurred, in the case of a termination pursuant to Section 15.2, as a result of
the material breach by Anthra. In the event of the termination of this Agreement
by Anthra pursuant to this Article XV, no license granted to Medeva in Section
5.1 shall survive such termination.
In the event of termination of this Agreement by Anthra pursuant to
Section 15.2 or 15.5, Medeva shall promptly, but not later than thirty (30) days
after such termination, at its own expense assign and transfer, or cause to be
assigned and transferred, to Anthra, or any third party designated by Anthra,
any Trademarks then or previously used by Medeva or any of its Affiliates or
Sublicensees in Marketing, distributing or selling the Product in the Territory.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Force Majeure. If a party's performance of this Agreement or of
any obligation hereunder, except for the payment of any amounts hereunder, is
prevented, restricted or interfered with by reason of any cause beyond the
reasonable control of the affected party, such party, upon prompt written Notice
to the other party, shall be excused from such
*** CONFIDENTIAL TREATMENT REQUESTED.
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performance to such extent, provided that the party so affected shall use its
best efforts to avoid or remove such causes of nonperformance and shall continue
performance hereunder with the utmost dispatch whenever such causes are removed.
16.2 Notice. All notices, requests, reports, statements and other
communications to either party (each a "Notice") shall be in writing, in the
English language, shall refer specifically to this Agreement and shall be hand
delivered or sent by express courier service, carriage costs prepaid, or mailed
by certified first class mail, postage prepaid and return receipt requested, or
sent by facsimile or other agreed method of written electronic communication to
the respective addresses specified below (or to such other address as may be
specified by Notice to the other party):
If to Anthra:
Anthra Pharmaceuticals, Inc.
19 Carson Road
Princeton, N.J. 08540 USA
Fax: (609) 924-3875
Attention: Michael C. Walker
If to Medeva:
Medeva California Inc.
c/o Medeva Legal Group
755 Jefferson Road
Rochester, N.Y. 14623
Fax: (716) 272-3955
Attention: Helen P. Wiley, Esq.
Any Notice delivered by facsimile or similar means
*** CONFIDENTIAL TREATMENT REQUESTED.
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shall be confirmed by a hard copy delivered as soon as practicable. The
effective date of any Notice shall be: (a) the date of the addressee's receipt,
if delivered by hand or express courier; (b) five (5) days after being mailed,
as evidenced by the postmark at the point of mailing, if mailed; (c) the date of
transmission if received by 5:00 p.m. local time on a business day or, if not,
the first business day after such date, if sent by facsimile or other similar
means.
16.3 Further Assurances. Each party shall duly execute and deliver,
or cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things, including, without limitation,
the filing of such assignments, agreements, documents and instruments, as may be
necessary or as the other party may reasonably request in connection with this
Agreement or to carry out more effectively the provisions and purposes hereof,
or to better assure and confirm unto such other party its rights and remedies
under, this Agreement.
16.4 Successors and Assigns. The terms and provisions hereof shall
inure to the benefit of, and be binding upon, Anthra, Medeva and their
respective successors and permitted assigns. Except as expressly provided
herein, neither party may, without the prior written consent of the other party,
assign or otherwise transfer any of its rights and interests, or delegate any of
its obligations, hereunder;
*** CONFIDENTIAL TREATMENT REQUESTED.
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provided, however, that either party may assign its rights and delegate its
duties hereunder to an Affiliate thereof without obtaining such consent,
provided that the assigning party agrees to remain primarily (and not
secondarily or derivatively) liable for the full and timely performance by such
Affiliate of all its obligations hereunder. In the event of any such transfer or
designation under this Section, the transferee or designated Affiliate must
first assume in writing and agree to be bound by the provisions of this
Agreement. Any attempt to assign or delegate any portion of this Agreement in
violation of this Section 16.4 shall be null and void.
16.5 Governing Law. This Agreement shall be governed by, construed,
and enforced in accordance with the laws of the State of New York, without
regard to the principles of conflicts of law. Each party agrees that any action
to enforce any provision of the Agreement may be commenced in a state or federal
court located in the City of New York, New York. Each party consents to the
jurisdiction and venue of any such court. The parties further acknowledge that
proper service of process on a party may be made on an agent designated by such
party located in the City of New York, New York or by certified mail.
16.6 Attorney's Fees. Without limitation of Article XIV, in the
event that either party hereto shall bring an
*** CONFIDENTIAL TREATMENT REQUESTED.
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action to enforce any provision of this Agreement, the prevailing party shall be
entitled to collect its reasonable attorneys' fees and out-of-pocket costs
incurred in connection therewith, as well as such party's actual damages and
such other amounts as shall be payable hereunder or under applicable law.
16.7 Severability. If any provision hereof, other than the
requirements to pay development fees, license fees and royalties pursuant to
Article VII and the license grants in Article V, should be held invalid, illegal
or unenforceable in any respect by any court of competent jurisdiction, then, to
the fullest extent permitted by applicable law, (a) all other provisions hereof
shall remain in full force and effect and shall be liberally construed in order
to carry out the intent of the parties as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction, and (c)
such court may substitute therefor lawful and enforceable provisions that so far
as possible result in the same economic effect, in the absence of which the
parties agree to use their best efforts to negotiate a provision, in replacement
of the provision held invalid, illegal or unenforceable, that is consistent with
applicable law and accomplishes, as nearly as possible, the original intention
of the parties with respect thereto. To the fullest
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extent permitted by applicable law, each party hereby waives any provision of
law that would render any provision hereof prohibited or unenforceable in any
respect.
16.8 Waiver. No failure on the part of any party hereto to exercise,
and no delay in exercising, any right, privilege or power hereunder shall
operate as a waiver (or continuing waiver) or relinquishment thereof; nor shall
any single or partial exercise by any party thereto of any right, privilege or
power hereunder preclude any other or further exercise thereof, or the exercise
of any other right, privilege or power.
16.9 Counterparts. This Agreement shall be executed in two
counterparts, each of which shall be deemed to be an original, and all of which,
taken together, shall constitute one and the same instrument.
16.10 Captions. The captions of this Agreement are for convenience
of reference only and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provision contained in this
Agreement.
16.11 Independent Contractors. The status of the parties under this
Agreement shall be that of independent contractors. No party shall have the
right to enter into any agreements on behalf of the other party, nor shall it
represent to any person that it has any such right or
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authority. Nothing in this Agreement shall be construed as establishing a
partnership or joint venture relationship between the parties hereto.
16.12 Entire Agreement. This Agreement constitutes, on and as of the
date hereof, the entire agreement of the parties with respect to the subject
matter hereof, and all prior or contemporaneous understandings or agreements,
whether written or oral, between the parties with respect to such subject matter
are hereby superseded in their entireties. This Agreement shall not be amended
in any respect whatsoever except by a further agreement, in writing, fully
executed by each of the parties.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
ANTHRA PHARMACEUTICALS, INC. MEDEVA CALIFORNIA INC.
By: /s/ Michael C. Walker By: /s/ A. Hyland
-------------------------- --------------------------
Name: Michael C. Walker Name: A. Hyland
Title: President Title: Controller
Medeva PLC, the ultimate parent of Medeva California Inc., hereby
unconditionally guarantees the full and prompt performance by Medeva California
Inc. of its obligations under this Agreement, including without limitation its
obligations under Article VII. Medeva PLC hereby expressly waives notice from
Anthra of Anthra's acceptance and reliance on this guarantee or of any action
taken or omitted in reliance hereon, and agrees that Anthra may enforce its
rights under this guarantee without first exhausting its remedies against Medeva
California Inc. under this Agreement. No assignment of this Agreement shall
relieve Medeva PLC of its obligations under this guarantee except as may be
expressly agreed to by Anthra in writing.
MEDEVA PLC
By: /s/ Gwatts
--------------------------
Name: Gwatts
Title: Finance Director
*** CONFIDENTIAL TREATMENT REQUESTED.
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Exhibit 10.17
---------------------------------------------------------------------------
ABR BENEFITS SERVICES, INC. REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PLAN AND TRUST
---------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
ARTICLE I INTRODUCTION...........................................................................1
1.1.1. Creation and Title.....................................................................1
1.1.2. Effective Date.........................................................................1
1.1.3. Purpose................................................................................1
ARTICLE II DEFINITIONS............................................................................1
PART II
ARTICLE I PARTICIPATION.........................................................................13
2.1.1. Eligibility Requirements..............................................................13
2.1.2. Commencement of Participation.........................................................13
2.1.3. Participation Upon Re-Employment......................................................13
2.1.4. Termination of Participation..........................................................13
2.1.5. Employer's Determination..............................................................13
2.1.6. Omission of Eligible Employee.........................................................13
2.1.7. Inclusion of Ineligible Participant...................................................14
2.1.8. Election Not to Participate...........................................................14
2.1.9. Change in Status......................................................................14
2.1.10. Existing Participants.................................................................14
ARTICLE II CONTRIBUTIONS.........................................................................15
2.2.1. Employer Contributions................................................................15
2.2.2. Elective Contributions by the Employer on Behalf of Electing Employees ...............16
2.2.3. Employee Contributions................................................................17
2.2.4. Return of Contributions...............................................................17
ARTICLE III ALLOCATIONS...........................................................................18
2.3.1. Profit Sharing and Money Purchase Pension Plans.......................................18
2.3.2. Cash or Deferred Plans................................................................18
2.3.3. Integration with Social Security......................................................19
2.3.4. Limitation............................................................................20
2.3.5. Minimum Allocation....................................................................20
2.3.6. Fail-Safe Allocation..................................................................20
ARTICLE IV BENEFITS..............................................................................21
2.4.1. Distributable Benefit.................................................................21
2.4.2. Vesting...............................................................................21
2.4.3. Leave of Absence......................................................................22
2.4.4. Re-Employment.........................................................................22
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
2.4.5. Distribution Date.....................................................................23
2.4.6. Forfeitures...........................................................................23
ARTICLE V DISTRIBUTIONS.........................................................................24
2.5.1. Commencement of Distribution..........................................................24
2.5.2. Method of Distribution................................................................29
2.5.3. Nature of Distributions...............................................................36
2.5.4. Advance Distributions.................................................................37
2.5.5. Hardship Distributions................................................................37
2.5.6. In Service Distributions..............................................................38
ARTICLE VI CONTINGENT TOP HEAVY PROVISIONS.......................................................39
2.6.1. Top Heavy Requirements................................................................39
2.6.2. Top Heavy Definitions.................................................................40
2.6.3. Pairing Requirements..................................................................43
ARTICLE VII SPECIAL CODA LIMITATIONS .............................................................44
2.7.1. Limitation on Deferral Percentage for Highly Compensated Employees. ..................44
2.7.2. Multiple Plan Limitations.............................................................45
2.7.3. Limitation on Matching Contributions..................................................45
2.7.4. Special Rules.........................................................................46
2.7.5. Distribution of Excess Elective Deferrals.............................................47
2.7.6. Distribution of Excess Contributions..................................................48
2.7.7. Distribution of Excess Aggregate Contributions........................................48
2.7.8. Limitation on Distributions...........................................................49
2.7.9. Limitation on Elective Deferrals......................................................50
PART III
ARTICLE I ACCOUNTING............................................................................50
3.1.1. Accounts..............................................................................50
3.1.2. Adjustments...........................................................................50
ARTICLE II LIMITATIONS...........................................................................52
3.2.1. Limitations on Annual Additions.......................................................52
3.2.2. Controlled Businesses.................................................................59
ARTICLE III FIDUCIARIES...........................................................................59
3.3.1. Standard of Conduct...................................................................59
3.3.2. Individual Fiduciaries................................................................60
3.3.3. Disqualification from Service.........................................................60
3.3.4. Bonding...............................................................................60
3.3.5. Prior Acts............................................................................60
3.3.6. Insurance and Indemnity...............................................................60
3.3.7. Expenses..............................................................................61
3.3.8. Agents, Accountants and Legal Counsel.................................................61
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.3.9. Investment Manager....................................................................61
3.3.10. Finality of Decisions or Acts.........................................................61
3.3.11. Certain Custodial Accounts and Contracts..............................................62
ARTICLE IV PLAN ADMINISTRATOR....................................................................62
3.4.1. Administration of Plan................................................................62
3.4.2. Disclosure Requirements...............................................................63
3.4.3. Information Generally Available.......................................................63
3.4.4. Statement of Accrued Benefit..........................................................64
3.4.5. Explanation of Rollover Treatment.....................................................64
ARTICLE V TRUSTEE...............................................................................64
3.5.1. Acceptance of Trust...................................................................64
3.5.2. Trustee Capacity - Co-Trustees........................................................64
3.5.3. Resignation, Removal, and Successors..................................................64
3.5.4. Consultations.........................................................................65
3.5.5. Rights, Powers and Duties.............................................................65
3.5.6. Trustee Indemnification...............................................................67
3.5.7. Changes in Trustee Authority..........................................................67
ARTICLE VI TRUST ASSETS..........................................................................67
3.6.1. Trustee Exclusive Owner...............................................................67
3.6.2. Investments...........................................................................67
3.6.3. Administration of Trust Assets........................................................69
3.6.4. Segregated Funds......................................................................70
3.6.5. Investment Control Option.............................................................70
ARTICLE VII LOANS ................................................................................72
3.7.1. Authorization.........................................................................72
3.7.2. Spousal Consent.......................................................................72
3.7.3. Limitations...........................................................................73
3.7.4. Availability..........................................................................73
3.7.5. Prohibitions..........................................................................73
ARTICLE VIII BENEFICIARIES ........................................................................73
3.8.1. Designation of Beneficiaries..........................................................73
3.8.2. Absence or Death of Beneficiaries.....................................................74
3.8.3. Surviving Spouse Election.............................................................74
ARTICLE IX CLAIMS................................................................................74
3.9.1. Claim Procedure.......................................................................74
3.9.2. Appeal................................................................................75
ARTICLE X AMENDMENT AND TERMINATION.............................................................75
3.10.1. Right to Amend........................................................................75
3.10.2. Manner of Amending....................................................................76
3.10.3. Limitations On Amendments.............................................................76
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.10.4. Voluntary Termination.................................................................77
3.10.5. Involuntary Termination...............................................................77
3.10.6. Withdrawal By Employer................................................................77
3.10.7. Powers Pending Final Distribution.....................................................78
3.10.8. Delegation to Sponsor.................................................................78
ARTICLE XI PORTABILITY...........................................................................78
3.11.1. Continuance by Successor..............................................................78
3.11.2. Merger With Other Plan................................................................78
3.11.3. Transfer From Other Plans.............................................................79
3.11.4. Transfer to Other Plans...............................................................79
ARTICLE XII MISCELLANEOUS.........................................................................80
3.12.1. No Reversion to Employer..............................................................80
3.12.2. Employer Actions......................................................................80
3.12.3. Execution of Receipts and Releases....................................................80
3.12.4. Rights of Participants Limited........................................................80
3.12.5. Persons Dealing With Trustee Protected................................................80
3.12.6. Protection of the Insurer.............................................................80
3.12.7. No Responsibility for Act of Insurer..................................................81
3.12.8. Inalienability........................................................................81
3.12.9. Domestic Relations Orders.............................................................81
3.12.10. Authorization to Withhold Taxes.......................................................83
3.12.11. Missing Persons.......................................................................83
3.12.12. Notices...............................................................................83
3.12.13. Governing Law.........................................................................84
3.12.14. Severability of Provisions............................................................84
3.12.15. Gender and Number.....................................................................84
3.12.16. Binding Effect........................................................................84
3.12.17. Qualification Under Internal Revenue Laws.............................................84
</TABLE>
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PART I
ARTICLE I
INTRODUCTION
1.1.1. CREATION AND TITLE. The parties hereby create a Plan and Trust
to be known by the name set forth in the Adoption Agreement.
1.1.2. EFFECTIVE DATE. The provisions of this Plan and Trust shall be
effective as of the Effective Date set forth in the Adoption Agreement.
1.1.3. PURPOSE. This Plan and Trust is established for the purpose of
providing retirement benefits to eligible employees in accordance with the Plan
and the Adoption Agreement. If the Employer designates the Plan as a Cash or
Deferred Profit Sharing Plan in the Adoption Agreement, the Plan is also
intended to enable eligible Employees to supplement their retirement by electing
to have the Employer contribute amounts to the Plan and Trust in lieu of
payments to such Employees in cash and the Plan and Trust are intended to
satisfy the provisions of Section 401(k) of the Internal Revenue Code of 1986,
as amended.
ARTICLE II
DEFINITIONS
As used in this Plan and the Adoption Agreement, the following terms
shall have the following meanings:
1.2.1. "ACCOUNT": The Employer Account, Controlled Account, Elective
Contribution Account, Matching Account, Qualified Non-Elective Contribution
Account, Voluntary Account or Segregated Account of a Participant, as the
context requires, established and maintained for accounting purposes.
1.2.2. "ACP": The average contribution percentage determined in
accordance with the provisions of Part II, Article VII.
1.2.3. "ACT": The Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.2.4. "ADP": The actual deferral percentage determined in accordance
with the provisions of Part II, Article VII.
1.2.5. "ANNIVERSARY DATE": Unless otherwise specified in the Adoption
Agreement, the last day of each Plan Year.
1
<PAGE> 7
1.2.6. "BENEFICIARY": The person or persons entitled hereunder to
receive the benefits which may be payable upon or after a Participant's death.
1.2.7. "BOARD OF DIRECTORS": The board of directors of an
incorporated Employer.
1.2.8. "BREAK IN SERVICE": The failure of a Participant to complete
more than five hundred (500) Hours of Service or such lesser number specified in
the Adoption Agreement during any 12 consecutive month computation period,
beginning with a Participant's first computation period after becoming a
Participant. A Year of Service and a Break in Service for vesting purposes shall
be measured on the same computation period. The Eligibility Computation Period
and a Break in Service for eligibility purposes shall be measured on the same
computation period.
1.2.9. "CODE": The Internal Revenue Code of 1986, as amended from
time to time.
1.2.10."CONVERSATION": The compensation as defined in the Plan and as
specified in the Adoption Agreement (or Earned Income in the case of a
self-employed individual) which is actually paid to the Participant by the
Employer during the Compensation Computation Period; provided that if specified
by the Employer in the Adoption Agreement, compensation shall also include any
amount which is contributed by the Employer pursuant to a salary reduction
agreement and which is not includible in the gross income of the Employee under
Sections 125, 402(a)(8), 402(h), 403(b) or 457(b) of the Code; provided further
that for years beginning after December 31, 1988, the annual gross compensation
taken into account for purposes of the Plan shall not exceed $200,000, as such
amount may be adjusted by the Secretary of the Treasury at the same time and in
the same manner as under Section 415(d) of the Code, except that the dollar
increase in effect on January I of any calendar year is effective for years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If the plan determines compensation
on a period of time that contains less than twelve (12) calendar months, then
the annual compensation limit is an amount equal to the annual compensation
limit for the calendar year in which the compensation period begins multiplied
by the ratio obtained by dividing the number of full months in the period by 12.
For purposes of this dollar limitation, the rules of Section 414(q)(6) of the
Code requiring the aggregation of the compensation of family members shall
apply, except that in applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal descendants of the Participant who
have not attained age nineteen (19) before the close of the year. If, as a
result of the application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes of determining the portion of compensation
up to the Social Security Integration Level if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected individuals in
proportion to each such individual's compensation as determined under this
Section prior to the application of this limitation. If compensation for any
prior plan year is taken into account in determining an employee's contributions
or benefits for the current year, the compensation for such prior year is
subject to the applicable annual compensation limit in effect for that prior
year. For this purpose, for years beginning before January 1, 1990, the
applicable annual compensation limit is $200,000.
1.2.11. "COMPENSATION COMPUTATION PERIOD": The period specified as
the Compensation Computation Period in the Adoption Agreement.
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<PAGE> 8
1.2.12. "CONTROLLED ACCOUNT": An account established and maintained
for a Participant to account for his interest in a Segregated Fund over which he
exercises investment control.
1.2.13. "DATE OF HIRE": The date an Employee first completes an Hour
of Service for the Employer.
1.2.14. "DISTRIBUTABLE BENEFIT": The benefit to which a Participant
is entitled following termination of his employment.
1.2.15. "DISTRIBUTION DATE": The date as of which the Distributable
Benefit of a Participant is determined.
1.2.16. "EARLY RETIREMENT AGE": The age specified as the Early
Retirement Age, if any, in the Adoption Agreement.
1.2.17. "EARLY RETIREMENT DATE": The date specified as the Early
Retirement Date, if any, in the Adoption Agreement.
1.2.18. "EARNED INCOME": The net earnings from self-employment in the
trade or business with respect to which the Plan is established for which
personal services of the Participant are a material income-producing factor. Net
earnings shall be determined without regard to items not included in gross
income and the deductions allocable to such items but, in the case of taxable
years beginning after 1989, with regard to the deduction allowed to the taxpayer
by Section 164(f) of the Code. Net earnings shall be reduced by contributions to
a qualified plan to the extent deductible under Section 404 of the Code.
1.2.19. "ELECTIVE CONTRIBUTION ACCOUNT": An Account established and
maintained for a Participant to account for the Elective Contributions made on
his behalf.
1.2.20. "ELECTIVE CONTRIBUTION": A contribution to a cash or deferred
profit sharing plan by the Employer on behalf of an electing Employee.
1.2.21."ELECTIVE DEFERRALS": Any Employer contributions made to the
Plan at the election of the Participant, in lieu of cash compensation, including
contributions made pursuant to a salary reduction agreement or other deferral
mechanism. With respect to any taxable year, a Participant's Elective Deferral
is the sum of all Employer contributions made on behalf of the Participant
pursuant to an election to defer under any qualified CODA as described in
Section 401(k) of the Code, any simplified employee pension cash or deferred
arrangement as described in Section 402(h)(1)(B), any eligible deferred
compensation plan under Section 457, any plan as described under Section
501(c)(18), and any employer contributions made on the behalf of a participant
for the purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any deferrals
properly distributed as excess annual additions.
1.2.22."ELIGIBILITY COMPUTATION PERIOD": For purposes of determining
Years of Service and Breaks in Service for purposes of eligibility, the initial
eligibility computation period is the twelve (12) consecutive month period
beginning with the employment commencement
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<PAGE> 9
date on which the Employee first renders an Hour of Service for the Employer,
and unless otherwise specified in the Adoption Agreement, the subsequent
eligibility computation periods are each subsequent twelve (12) consecutive
month period commencing on the annual anniversary of such employment
commencement date. If in accordance with the election in the Adoption Agreement,
the subsequent periods commence with the first Plan Year which commences prior
to the first anniversary of the Employee's employment commencement date, an
Employee who is credited with 1,000 Hours of Service in both the initial
eligibility computation period and the first Plan Year which commences prior to
the first anniversary of the Employee's initial eligibility computation period
shall be credited with two (2) years of service for purposes of eligibility to
participate.
1.2.23."EMPLOYEE": A person who is currently or hereafter employed by
the Employer, or by any other employer aggregated under section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder, including a Leased Employee
subject to section 414(n) of the Code and a self-employed owner of an
unincorporated Employer, but, unless otherwise provided in the Adoption
Agreement, excluding (a) an independent contractor; (b) an employee who is a
non-resident alien (within the meaning of section 7701(b)(1)(B) of the Code)
deriving no-earned income (within the meaning of section 911(d)(2) of the Code)
from the Employer which constitutes income from sources within the United States
(within the meaning of section 861(a)(3) of the Code); and (c) employees who are
included in the unit of employees covered by a collective bargaining agreement
between the Employer and employee representatives, provided benefits were the
subject of good faith bargaining and two percent or less of the employees of the
Employer who are covered pursuant to that agreement are professionals as defined
in Treasury Regulation Section 1.410(b)-9(g). For this purpose, the term
"employee representatives" does not include any organization more than half of
whose members are employees who are owners, officers, or executives of the
employer.
1.2.24. "EMPLOYER": The Employer that is a party to this Plan, or any
of its affiliates, successors or assigns which adopt the Plan; provided,
however, that no mere change in the identity, form or organization of the
Employer shall affect its status under the Plan in any manner, and, if the name
of the Employer is hereafter changed, a corresponding change shall be deemed to
have been made in the name of the Plan and references herein to the Employer
shall be deemed to refer to the Employer as it is then known.
1.2.25. "EMPLOYER ACCOUNT": An Account established and maintained for
a Participant for accounting purposes to which his share of Employer
contributions and forfeitures are added.
1.2.26. "EMPLOYER CONTRIBUTION": A contribution to a money purchase
pension plan or profit sharing plan other than a cash or deferred profit sharing
plan by the Employer.
1.2.27. "ENTRY DATE": The date or dates specified as the Entry Date
in the Adoption Agreement.
1.2.28. "EXCESS AGGREGATE CONTRIBUTIONS": With respect to any Plan
Year, the excess of:
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<PAGE> 10
(a) The aggregate contribution percentage amounts taken
into account in computing the numerator of the contribution
percentage actually made on behalf of Highly Compensated Employees
for such Plan Year, over
(b) The maximum contribution percentage amounts permitted
by the ACP test (determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their contribution
percentages beginning with the highest of such percentages). Such
determination shall be made after first determining Excess. Elective
Deferrals and then determining Excess Contributions.
1.2.29. "EXCESS CONTRIBUTIONS": With respect to any Plan Year, the
excess of:
(a) The aggregate amount of Employer Contributions
actually taken into account in computing the ADP of Highly Compensated Employees
for such Plan Year, over
(b) The maximum amount of such contributions permitted by
the ADP test (determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest of such
percentages.
1.2.30. "EXCESS ELECTIVE DEFERRALS": Those Elective Deferrals that
are includible in a Participant's gross income under section 402(g) of the Code
to the extent such participant's Elective Deferrals for a taxable year exceed
the dollar limitation under such Code section. Excess Elective Deferrals shall
be treated as annual additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
1.2.31. "EXCESSIVE ANNUAL ADDITION": The portion of the allocation of
contributions and forfeitures that cannot be added to a Participant's Accounts
due to the limitations on annual additions contained in the Plan.
1.2.32. "FAMILY": The spouse and lineal ascendants or descendants of
an Employee and the spouses of such lineal ascendants and descendants.
1.2.33. "FIDUCIARY": The Plan Administrator, the Trustee and any
other person who has discretionary authority or control in the management of the
Plan or the disposition of Trust assets.
1.2.34. "HIGHLY COMPENSATED EMPLOYEE": A highly compensated active
employee and a highly compensated former employee. A highly compensated active
employee includes: any Employee who performs service for the Employer during the
determination year and who, during the look-back year: (i) received compensation
from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d)
of the Code); (ii) received compensation from the Employer in excess of $50,000
(as adjusted pursuant to Section 415(d) of the Code) and was a member of the
top-paid group for such year; or (iii) was an officer of the Employer and
received compensation during such year that is greater than 50 percent of the
dollar limitation as in effect under Section 415(b)(1)(A) of the Code. The term
highly compensated employee also includes: (i) employees who are both described
in the preceding sentence if the term "determination year" is substituted for
the term "look-back year" and the employee is one of the 100 employees who
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<PAGE> 11
received the most compensation from the Employer during the determination year;
and (ii) employees who are 5 percent owners at any time during the look-back
year or determination year. If no officer has satisfied the compensation
requirement of (iii) above during either a determination year or look-back year,
the highest paid officer for such year shall be treated as a highly compensated
employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the twelve-month period immediately preceding the determination
year and compensation is as defined in Section 415(c)(3) of the Code including
amounts contributed by the Employer pursuant to a salary reduction agreement and
which is not includible in gross income under Sections 125, 402(a)(8), 402(h) or
403(b) of the Code.
A highly compensated former employee includes any employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for the employer during the determination year, and was a
highly compensated active employee for either the separation year or any
determination year ending on or after the employee's 55th birthday.
If an Employee is, during a Plan Year or the preceding Plan Year, a family
member of either a 5 percent owner who is an active or former employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
employees ranked on the basis of compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten highly
compensated employee shall be aggregated. In such case, the family member and 5
percent owner or top-ten highly compensated employee shall be treated as a
single employee receiving compensation and plan contributions or benefits equal
to the sum of such compensation and contributions or benefits of the family
member and 5 percent owner or top-ten highly compensated employee. For purposes
of this section, family member includes the spouse, lineal ascendants and
descendants of the employee or former employee and the spouses of such lineal
ascendants and descendants.
An Employee is in the top-paid group of employees for any year if the Employee
is in the group consisting of the top twenty (20%) percent of the employees when
ranked on the basis of compensation paid during such year.
For purposes of determining whether an Employee is a highly compensated
employee, Sections 414(b), (c), (m), (n) and (o) of the Code shall be applied.
The determination of who is a highly compensated employee, including the
determination of the number and identity of employees in the top-paid group, the
top 100 employees, the number of employees treated as officers and the
compensation that is considered, will be made in accordance with Section 414(q)
of the Code and the regulations thereunder.
1.2.35. "HOUR OF SERVICE": An hour for which (a) the Employee is
paid, or entitled to payment by the Employer for the performance of duties, (b)
the Employee is paid or entitled to payment by the Employer during which no
duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence, or (c) back
pay, irrespective of
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<PAGE> 12
mitigation of damages, has been either awarded or agreed to by the Employer.
Hours of Service shall be credited to the Employee under (a), above, for the
period in which the duties are performed, under (b), above, in the period in
which the period during which no duties are performed occurs, beginning with the
first Hour of Service to which the payment relates, and under (c), above, for
the period to which the award or agreement pertains rather than the period in
which the award, agreement or payment is made; provided, however, that Hours of
Service shall not be credited under both (a) and (b), above, as the case may be,
and under (c) above.
Notwithstanding the preceding sentences, (i) no more than five hundred one (501)
Hours of Service shall be credited under (b), above, on account of any single
continuous period during which the Employee performs no duties whether or not
such period occurs in a single computation period, (ii) no Hours of Service
shall be credited to the Employee by reason of a payment made or due under a
plan maintained solely for the purpose of complying with applicable worker's
compensation, or unemployment compensation or disability insurance laws, and
(iii) no Hours of Service shall be credited by reason of a payment which solely
reimburses an employee for medical or medically related expenses. incurred by
the Employee. The determination of Hours of Service for reasons other than the
performance of duties and the crediting of Hours of Service to computation
periods shall be made in accord with the provisions of Labor Regulation Sections
2530.200b-2(b) and (c) which are incorporated herein by reference.
Solely for the purposes of determining whether an Employee has incurred a Break
in Service, an Employee shall be credited with the number of Hours of Service
which would otherwise have been credited to such individual but for the absence
or in any case in which such Hours cannot be determined with eight (8) Hours of
Service for any day that the Employee is absent from work by reason of the
Employee's pregnancy, the birth of a child of the Employee, the placement of a
child with the Employee in connection with the adoption of such child by the
Employee or for purposes of caring for such child for a period beginning
immediately following such birth or placement. Such Hours of Service shall be
credited only in the computation period in which the absence from work begins if
the Employee would be prevented from incurring a Break in Service in such
computation period solely because credit is given for such period of absence
and, in any other case, in the immediately following computation period.
Notwithstanding the foregoing, no credit shall be given for such service unless
the Employee furnishes to the Plan Administrator information to establish that
the absence from work is for the reasons indicated and the number of days for
which there was such an absence.
In the event the Employer does not maintain records of the actual hours for
which an Employee is paid or entitled to payment, credit for service shall be
given in accordance with the method selected in the Adoption Agreement.
Service with another business entity that is, along with the Employer, a member
of a controlled group of corporations under Section 414(b) of the Code, an
affiliated service group under Section 414(m) of the Code or trades or
businesses under common control under Section 414(c) of the Code, or which is
otherwise required to be aggregated with the Employer pursuant to Section 414(o)
of the Code and the regulations issued them-under shall be treated as service
for the Employer. Hours of Service shall be credited for any individual
considered an employee for purposes of this Plan under Section 414(n) or Section
414(o) of the Code and the regulations issued thereunder.
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<PAGE> 13
If the Employer maintains the plan of a predecessor employer, service with such
predecessor shall be treated as service for the Employer.
1.2.36."INSURER": Any insurance company which has issued a Life
Insurance Policy.
1.2.37."JOINT AND SURVIVOR ANNUITY": An immediate annuity for the
life of the Participant with a survivor annuity for the life of the spouse which
is not less than fifty (50%) percent and not more than one hundred (100%)
percent of the amount of the annuity which is payable during the joint lives of
the Participant and the spouse and which is the amount of benefit which can be
purchased with the Participant's vested Account balances. The percentage of the
survivor annuity shall be fifty (50%) percent unless a different percentage is
elected by the Employer in the Adoption Agreement.
1.2.38."LEASED EMPLOYEE": Any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any other
person has performed services for the recipient (or for the recipient and
related persons determined in accordance with Section 414(n)(6) of the Code) on
a substantially full time basis for a period of at least one (1) year and such
services are of a type historically performed by employees in the business field
of the recipient employer; provided that any such person shall not be taken into
account if (a) such person is covered by a money purchase pension plan providing
(i) a nonintegrated employer contribution rate of at least ten (10%) percent of
compensation, as defined in Section 415(c)(3) of the Code and Section
3.2.1(h)(iii) of the Plan, but including amounts contributed by the employer
pursuant to a salary reduction agreement which are excludable from the person's
gross income under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code; (ii)
immediate participation; and (iii) full and immediate vesting; and (b) leased
employees do not constitute more than twenty (20%) percent of the workforce of
the recipient who are not Highly Compensated Employees. Contributions or
benefits provided a leased employee by the leasing organization which are
attributable to services performed for the recipient employer shall be treated
as provided by the recipient employer.
1.2.39. "LIFE INSURANCE POLICY": A life insurance, annuity or
endowment policy or contract which is owned by the Trust and is on the life of a
Participant.
1.2.40. "LIMITATION YEAR": Unless otherwise specified in-the Adoption
Agreement, the Plan Year; provided that all qualified plans maintained by the
Employer use the same Limitation Year.
1.2.41. "MASS SUBMITTER": DATAIR Employee Benefits Systems Inc.
1.2.42. "MATCHING ACCOUNT": An Account established and maintained for
a Participant for accounting purposes to which his share of Matching
Contributions are added.
1.2.43. "MATCHING CONTRIBUTION": A contribution to the Plan by the
Employer which matches in whole or in part an Elective Contribution on behalf of
an electing Employee.
1.2.44. "NON-ELECTIVE CONTRIBUTION": A contribution to a cash or
deferred profit sharing plan by the Employer which is neither a Qualified
Non-Elective Contribution, a Matching Contribution nor an Elective Contribution.
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<PAGE> 14
1.2.45. "NORMAL RETIREMENT AGE": The earlier of the date specified as
the Normal Retirement Age in the Adoption Agreement or the mandatory retirement
age enforced by the Employer.
1.2.46. "NORMAL RETIREMENT DATE": The date specified in the Adoption
Agreement as the Normal Retirement Date.
1.2.47. "OWNER-EMPLOYEE": An individual who is a sole proprietor or
who is a partner owning more than ten percent (10%) of either the capital or
profits interest of the partnership.
1.2.48."PARTICIPANT": Any eligible Employee who becomes entitled to
participate in the Plan.
1.2.49. "PLAN": The defined contribution plan for Employees as set
forth in this Agreement and the Adoption Agreement, together with any amendments
or supplements thereto.
1.2.50. "PLAN ADMINISTRATOR": The person, persons or entity.
appointed by the Employer to administer the Plan, or, if the Employer fails to
make such appointment, the Employer.
1.2.51. "PLAN SPONSOR": The Plan Sponsor specified in the Adoption
Agreement.
1.2.52. "PLAN YEAR" OR "YEAR": The 12 consecutive month period
designated by the Employer in the Adoption Agreement.
1.2.53. "PRERETIREMENT SURVIVOR ANNUITY": A survivor annuity for the
life of the surviving spouse of the Participant, the actuarial equivalent of
which is equal to the portion of the Account balance of the Participant as of
the date of death to which the Participant had a vested and nonforfeitable
right, provided that any security interest held by the Plan by reason of a loan
outstanding to the Participant for which a valid spousal consent has been
obtained, if necessary, shall be taken into account.
1.2.54."QUALIFIED NON-ELECTIVE CONTRIBUTION": A contribution to a
cash or deferred profit sharing plan by the Employer which is neither a Matching
Contribution nor an Elective Contribution, is one hundred percent (100%) vested
and nonforfeitable when made, which a Participant may not elect to have paid in
cash instead of being contributed to the Plan and which may not be distributed
from the Plan (except in the case of a hardship distribution) prior to the
termination of employment or death of the Participant, attainment of age 59-1/2
by the Participant or termination of the Plan without establishment of a
successor plan.
1.2.55. "QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT": An Account
established and maintained for a Participant to account for the Qualified
Non-Elective Contributions made on his behalf
1.2.56. "QUALIFYING EMPLOYER SECURITIES OR REAL PROPERTY": Securities
or real property of the Employer which the Trustee may acquire and hold pursuant
to the applicable provisions of the Code and the Act.
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<PAGE> 15
1.2.57. "SEGREGATED ACCOUNT": An Account established and maintained
for a Participant to account for his interest in a Segregated Fund.
1.2.58. "SEGREGATED FUND": Assets held in the name of the Trustee
which have been segregated from the Trust Fund in accordance with any of the
provisions of the Plan.
1.2.59. "SELF-EMPLOYED INDIVIDUAL": An individual who has Earned
Income for the taxable year from the trade or business for which the Plan is
established or who would have had Earned Income but for the fact that the trade
or business had no net profits for the taxable year.
1.2.60. "SOCIAL SECURITY INTEGRATION LEVEL": The Social Security
Integration Level shall be equal to' the taxable wage base or such lesser amount
specified in the Adoption Agreement. The "taxable wage base" is the contribution
and benefit base in effect under Section 230 of the Social Security Act on the
first day of the Plan Year for which allocations of Employer contributions and
forfeitures are made (referred to as the Social Security Wage Base). The Social
Security Integration Level shall be deemed to be the full amount of such Social
Security Integration Level, even though a Participant's Compensation may include
less than a full year's compensation because of either his participation
commencing after the first day of the Compensation Computation Period or his
service terminating prior to the end of the Compensation Computation Period.
1.2.61. "TRUST FUND": All money and property of every kind and
character held by the Trustee pursuant to the Plan, excluding assets held in
Segregated Funds.
1.2.62. "TRUSTEE": The persons, corporations, associations or
combination of them who shall at the time be acting as such from time to time
hereunder.
1.2.63. "VALUATION DATE": The date or dates specified as the
Valuation Date in the Adoption Agreement.
1.2.64. "VOLUNTARY ACCOUNT": An Account established and maintained
for a Participant for accounting purposes to which his voluntary Employee
contributions made prior to Plan Years beginning after 1986 have been added.
1.2.65. "YEAR OF SERVICE": The 12-consecutive month period
(computation period) specified in the Adoption Agreement during which an
employee completes at least one thousand (1,000) Hours of Service or such lesser
number specified in the Adoption Agreement. Unless otherwise specified in the
Adoption Agreement, all Years of Service shall be taken into account.
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PART II
ARTICLE I
PARTICIPATION
2.1.1.ELIGIBILITY REQUIREMENTS. Each Employee shall be eligible to
participate in this Plan and receive an appropriate allocation of contributions
upon satisfying the eligibility requirements set forth in the Adoption
Agreement.
2.1.2.COMMENCEMENT OF PARTICIPATION. An eligible Employee shall
become a Participant in the Plan on the applicable Entry Date selected in the
Adoption Agreement.
2.1.3. PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
employment terminates and who is subsequently re-employed shall re-enter the
Plan as a Participant immediately on the date of his reemployment. In the event
that an Employee completes the eligibility requirements set forth in the
Adoption Agreement, his employment terminates prior to becoming a Participant
and he is subsequently re-employed, such Employee shall be deemed to have met
the. eligibility requirements as of the date of his re-employment and shall
become a Participant on the date of his re-employment; provided, however, that
if he is re-employed prior to the date he would have become a Participant if his
employment had not terminated, he shall become a Participant as of the date he
would have become a Participant if his employment had not terminated. Any other
Employee whose employment terminates and who is subsequently reemployed shall
become a Participant in accordance with the provisions of Sections 2.1.1 and
2.1.2.
2.1.4. TERMINATION OF PARTICIPATION. An employee who has become a
participant shall remain a participant until the entire amount of his
distributable benefit is distributed to him or his beneficiary in the event of
death.
2.1.5. EMPLOYER'S DETERMINATION. In the event any question shall
arise as to the eligibility of any person to become a Participant or the
commencement of participation, the Employer shall determine such question and
the Employer's decision shall be conclusive and binding, except to the extent of
a claimant's right to appeal the denial of a claim.
2.1.6. OMISSION OF ELIGIBLE EMPLOYEE. If an Employee who should be
included as a Participant in the Plan is erroneously omitted and discovery of
the omission is made after the contribution by the Employer is made and
allocated, the Employer shall make an additional contribution on behalf of the
omitted Employee in the amount which the Employer would have contributed on his
behalf had he not been omitted.
2.1.7. INCLUSION OF INELIGIBLE PARTICIPANT. If any person is
erroneously included as a Participant in the Plan and discovery of the erroneous
inclusion is made after the contribution by the Employer is made and allocated,
the Employer may elect to treat the amount contributed on behalf of the
ineligible person plus any earnings thereon as a forfeiture for the Plan Year in
which the discovery is made and apply such amount in the manner specified in the
Adoption Agreement.
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2.1.8. ELECTION NOT TO PARTICIPATE. With respect only to
nonstandardized plans and notwithstanding anything contained in the Plan to the
contrary, an Employee may elect with the approval of the Employer not to
participate in the Plan if the election does not jeopardize the qualified or
tax-exempt status of the Plan under sections 401(a) and 501(a) of the Code,
respectively. The Employee shall sign such documents as may be reasonably
required by the Employer to evidence the election. If it is subsequently
determined that either the qualified or the tax-exempt status of the Plan has
been jeopardized, the Employer may elect to treat such Employee as having been
erroneously omitted. An Employee may revoke the election only with respect to
any subsequent Plan Year by written notice of revocation to the Employer prior
to the end of the Plan Year for which the revocation is effective.
2.1.9. CHANGE IN STATUS. If any Participant continues in the employ
of the Employer or an affiliate for which service is required to be taken into
account but ceases to be an Employee for any reason (such as becoming covered by
a collective bargaining agreement unless the collective bargaining agreement
otherwise provides) the Participant shall continue to be a Participant until the
entire amount of his benefit is distributed but the individual shall be deemed
not to have completed any "Years of Service" for purposes of Article V
("Benefits") during the period that the Participant is not an Employee for such
reason.
Such Participant shall continue to receive credit for Years of Service completed
during the period for purposes of determining his vested and nonforfeitable
interest in his Accounts. In the event that the individual subsequently again
becomes a member of an eligible class of employees, the individual shall
participate immediately upon the date of such change in status. If such
Participant incurs a Break in Service and is subsequently reemployed,
eligibility to participate shall be determined in accordance with Section 2.1.3.
In the event that an individual who is not a member of an eligible class of
employees becomes a member of an eligible class, the individual shall
participate immediately if such individual has satisfied the eligibility
requirements and would have otherwise previously become a participant.
2.1.10. EXISTING PARTICIPANTS. An Employee who, on the Effective
Date, was a Participant under the provisions of the Plan as in effect
immediately prior to the Effective Date shall be a Participant on the Effective
Date and the provisions of Sections 2.1.1 and 2.1.2, pertaining to
participation, shall not be applicable to such Employee. The rights of a
Participant whose employment terminated prior to the Effective Date shall be
determined under the provisions of the Plan as in effect at the time of such
termination.
ARTICLE II
CONTRIBUTIONS
2.2.1. EMPLOYER CONTRIBUTIONS.
(a) Amount of Contribution.
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(1) MONEY PURCHASE PENSION PLAN. The Employer
shall contribute to the Trust Fund each Plan Year such
amount, including any forfeitures to be applied, set forth
in the Adoption Agreement.
(2) PROFIT SHARING PLAN. The Employer shall
contribute to the Trust Fund each Plan Year such amount as
it may determine.
(3) CASH OR DEFERRED PROFIT SHARING PLAN.
(i) AMOUNT OF NON-ELECTIVE
CONTRIBUTION. The Employer shall contribute to
the Trust Fund each Plan Year such amount as a
Non-Elective Contribution as the Employer may
determine.
(ii) AMOUNT OF MATCHING CONTRIBUTION.
Subject to applicable limitations provided by the
Plan, the Employer shall contribute to the Trust
Fund each Plan Year with respect to the amount of
Elective Contributions on behalf of each electing
Employee a Matching Contribution determined in
the manner set forth in the Adoption Agreement.
(iii) AMOUNT OF QUALIFIED NON-ELECTIVE
CONTRIBUTION. The Employer shall contribute to
the Trust Fund each Plan Year such amount as a
Qualified Non-Elective Contribution as the
Employer may determine. In addition, in lieu of
distributing Excess Contributions or Excess
Aggregate Contributions as provided in Article
VII, below, and to the extent elected by the
Employer in the Adoption Agreement, the Employer
may make Qualified Non-Elective Contributions
on behalf of Employees who are not Highly
Compensated Employees that are sufficient to
satisfy either the ADP test or the ACP test, or
both, pursuant to regulations under the Code.
(b) LIMITATION. The contribution for any Plan Year by the
Employer shall not exceed the maximum amount deductible from the Employer's
income for such Year for federal income tax purposes under the applicable
sections of the Code.
(c) TIME OF CONTRIBUTION. All contributions by the Employer
shall be delivered to the Trustee not later than the date fixed by law for the
filing of the Employer's federal income tax return for the Year for which such
contribution is made (including any extensions of time granted by the Internal
Revenue Service for filing such return).
(d) DETERMINATION OF AMOUNT TO BE FINAL. The determination
by the Employer as to the amount to be contributed by the Employer hereunder
shall be in all respects final, binding, and conclusive on all persons or
parties having or claiming any rights under this agreement or under the Plan and
Trust created hereby. Under no circumstances and in no event shall any
Participant, Beneficiary, or other person or party have any right to examine the
books or records of the Employer.
(e) RIGHTS OF TRUSTEE AS TO CONTRIBUTIONS. The Trustee
shall have no duty to report any contribution to be made or to determine whether
contributions delivered to the
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<PAGE> 19
Trustee by the Employer comply with the provisions of this Agreement. The
Trustee shall be accountable only for funds actually received by the Trustee.
2.2.2. ELECTIVE CONTRIBUTIONS BY THE EMPLOYER ON BEHALF OF ELECTING
EMPLOYEES.
(a) AMOUNT OF CONTRIBUTION. If the Plan is designated in
the Adoption Agreement as a Cash or Deferred Profit Sharing Plan,
each Employee may elect to have the Employer contribute to the Trust
on his behalf for any Plan Year during which he is a Participant such
amounts expressed either in dollars or in whole percentages of his
Compensation as he may elect which would otherwise be payable by the
Employer as Compensation (but not to exceed the dollar limitation
provided by Section 402(g) of the Code as in effect at the beginning
of the taxable year); provided that the Employer may impose
reasonable limitations in a uniform, nondiscriminatory manner on the
amounts which may be so contributed in order to satisfy applicable
legal requirements and to assure the deductibility of amounts
contributed by the Employer to the Plan and any other qualified plan
of deferred compensation.
(b) ELECTION. The Plan Administrator shall determine the
manner in which a Participant may elect to have Elective
Contributions made to the Plan on his behalf. The Plan Administrator
shall establish reasonable periods during which the election may be
made, modified or revoked. Unless the Plan Administrator establishes
another period during which the election may be made, modified or
revoked, any such election may be made, modified or revoked during
the first and last months of the Plan Year. An election by an
Employee may not be made retroactively and once made shall remain in
effect until modified or terminated.
(c) PAYMENT OF CONTRIBUTION. Elective Contributions shall
be remitted by the Employer within a reasonable period after such
amount would have otherwise been payable to the Participant. The
Employer shall designate, in accordance with the Participant's
election, the Plan Year to which any such contributions which are
made after the end of the Plan Year pertain.
(d) SEGREGATED FUND. Unless an Elective Contribution on
behalf of a Participant is received by the Trustee within the time
prescribed by the Plan Administrator prior to a Valuation Date, the
Plan Administrator shall direct the Trustee to establish a Segregated
Fund with respect to such contribution. The funds contained in such
Segregated Fund shall be transferred to the Trust Fund in accordance
with the instructions of the Plan Administrator and such transfer
shall be deemed to have been made as of such next succeeding
Valuation Date. If an Elective Contribution on behalf of a
Participant is received by the Trustee within the period prescribed
by the Plan Administrator, such contribution shall be added to the
Trust Fund. Notwithstanding the foregoing, if the Trust Fund is
invested in safe manner that the Plan Administrator can determine,
with a reasonable degree of certainty, that portion of the adjustment
to fair market value which is attributable to Elective Contributions
received by the Trustee other than within such period, then the Plan
Administrator shall direct the Trustee shall add any such Elective
Contributions to the Trust Fund at the time the Trustee receives such
Elective Contributions.
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<PAGE> 20
(e) HARDSHIP DISTRIBUTIONS. An Employee may not have
Elective Contributions made on his or her behalf for the taxable year
following the taxable year of a hardship distribution in excess of
the applicable limit under Section 402(g) of the Code for such
taxable year less the amount of the Employee's Elective Deferrals for
the taxable year of the hardship distribution.
2.2.3. EMPLOYEE CONTRIBUTIONS.
(a) AMOUNT OF CONTRIBUTION. An Employee is neither required
nor permitted to contribute to the Plan for any Plan Year beginning
after the Plan Year in which the prototype Plan is adopted by the
Employer. Employee contributions for Plan Years beginning after 1986
shall be limited so as to meet the nondiscriminatory test of Section
401(m) of the Code. The Plan Administrator shall not accept
deductible employee contributions which are made for a taxable year
beginning after December 31, 1986. Contributions made prior to that
date will be maintained in a separate account which will be
nonforfeitable at all times. The account will share in the gains and
losses of the trust in the same manner as provided in Section 3.1.2
of the Plan. No part of the deductible voluntary contribution account
will be used to purchase life insurance.
(b) WITHDRAWAL OF CONTRIBUTIONS. In accordance with the
provisions of the Plan as in effect prior to Plan Years beginning
after 1986, all or any portion of an Employee's contributions may be
withdrawn by giving to the Plan Administrator written notice of any
proposed withdrawal. The Plan Administrator may adopt such procedures
with respect to such withdrawals as may be necessary or appropriate.
At the Plan Administrator's direction, the Trustee shall distribute
any such withdrawal to the Participant in accordance with the
procedures adopted by the Plan Administrator. Except in the case of
the voluntary deductible contribution account, such withdrawals shall
not include any interest or other increment earned on such
contributions. No forfeitures shall occur as a result of withdrawal
of an Employee's contributions. Notwithstanding the foregoing, a
withdrawal of an Employee's contributions must be consented to in
writing by the Participant's spouse.
2.2.4. RETURN OF CONTRIBUTIONS. Contributions by the Employer.,
including Employer, Qualified Non-Elective, Non-Elective and Matching
Contributions shall be returned to the Employer in the following instances:
(a) If a contribution by the Employer, including an
Employer, Qualified Non-Elective, Non-Elective or Matching
Contribution is made by the Employer by mistake of fact, then the
contribution shall be returned within one year after its payment upon
the Employer's written request.
(b) If a contribution by the Employer, including an
Employer, Qualified Non-Elective, Non-Elective or Matching
Contribution is conditioned on initial qualification of the Plan
under the applicable sections of the Code, and the Commissioner of
Internal Revenue determines that the Plan does not qualify, then the
contribution made incident to the initial qualification by the
Employer shall be returned within one year after the date of denial
of initial qualification of the Plan; provided that the application
for
15
<PAGE> 21
initial qualification is made by the time prescribed by law for
filing the Employer's tax return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the Treasury
may prescribe.
(c) Each contribution by the Employer, including an
Employer, Qualified Non-Elective, Non-Elective and Matching
Contribution is conditioned upon the deductibility of the
contribution under the applicable sections of the Code and to the
extent of a disallowance of the deduction for part or all of the
contribution, the contribution shall be returned within one year
after such disallowance upon the Employer's written request.
ARTICLE III
ALLOCATIONS
2.3.1. PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. As of each
Anniversary Date, the Employer Contributions made by the Employer with respect
to the preceding Plan Year, and forfeitures shall be allocated among the
Employer Accounts of Participants during the Plan Year in the manner set forth
in the Adoption Agreement; provided that if a Profit Sharing Plan is integrated
with Social Security, Section 2.3.3 shall also apply.
2.3.2. CASH OR DEFERRED PLANS.
(a) NON-ELECTIVE CONTRIBUTIONS. As of each Anniversary
Date, the Non-Elective Contributions made by the Employer with
respect to the preceding Plan Year, and forfeitures, shall be
allocated among the Employer Accounts of Participants during the Plan
Year in the manner specified in the Adoption Agreement; provided that
if the Plan is integrated with Social Security, Section 2.3.3 shall
also apply.
(b) MATCHING CONTRIBUTIONS. Unless otherwise specified in
the Adoption Agreement, as of each Anniversary Date, the Matching
Contribution made by the Employer with respect to the preceding Plan
Year, and forfeitures, shall be allocated to the Matching Accounts of
Participants for whom Elective Contributions were made in the manner
specified in the Adoption Agreement.
(c) ELECTIVE CONTRIBUTIONS. The Elective Contributions by
the Employer on behalf of an electing Employee shall be allocated to
the Elective Contribution Account of such electing Employee as of
each Valuation Date of the Plan Year to which the Elective
Contribution pertains.
(d) QUALIFIED NON-ELECTIVE CONTRIBUTIONS. As of each
Anniversary Date, the Qualified Non-Elective Contributions made by
the Employer with respect to the preceding Plan Year shall be
allocated to the Qualified Non-Elective Contribution Account of
Participants during the Plan Year in the manner specified in the
Adoption Agreement.
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<PAGE> 22
2.3.3. INTEGRATION WITH SOCIAL SECURITY. If the Employer has elected
in the Adoption Agreement that the Plan shall be integrated with Social
Security, then the applicable contributions and forfeitures shall be allocated
to Participants' accounts as follows (provided that Steps One and Two, below,
shall apply only in years in which the Plan is Top-Heavy):
STEP ONE: Contributions and forfeitures shall be allocated to each
Participant's account in the ratio that each Participant's
Compensation bears to all Participant's Compensation, but not in
excess of 3% of each Participant's Compensation.
STEP TWO: Any contributions and forfeitures remaining after the
allocation in Step One will be allocated to each Participant's
account in the ratio that each Participant's Compensation for the
Plan Year in excess of the Social Security Integration Level bears to
the excess compensation of all Participants, but not in excess of 3%.
STEP THREE: Any contributions and forfeitures remaining after the
allocation in Step Two shall be allocated to each Participant's
account in the ratio that the sum of each Participant's Compensation
and Compensation in excess of the Social Security Integration Level
bears to the sum of all Participants' Compensation and Compensation
in excess of the Social Security Integration Level, but not in excess
of the maximum profit sharing disparity rate.
STEP FOUR: Any remaining contributions and forfeitures shall be
allocated to each Participant's account in the ratio that each
Participant's Compensation for the Plan Year bears to all
Participants' Compensation for that year.
The maximum profit sharing disparity rate is equal to the lesser of:
(a) 5.7% (minus the percentage of Compensation allocated in
Step One, if any); or,
(b) 5.4% (minus the percentage of Compensation allocated in
Step One, if any) if the Social Security Integration
Level (SSIL) is more than 80% but less than 100% of the
taxable wage base under Section 230 of the Social
Security Act at the beginning of the Plan Year (TWB);
or 4.3% (minus the percentage of Compensation allocated
in Step One, if any) if the SSIL is greater than 20% of
the TWB, but not more than 80% of the TWB, and greater
than $10,000.
If the Social Security Integration Level selected by the Employer in the
Adoption Agreement is the taxable wage base under Section 230 of the Social
Security in effect as of the first day of the Plan Year, the applicable
percentage shall be 5.7% (2.7% if the Plan is Top-Heavy).
2.3.4. LIMITATION. The allocation of Employer contributions must
satisfy the requirements of Section 416 of the Code regardless of how the
Adoption Agreement is completed. Elective Contributions and Matching
Contributions allocated to key employees (as defined in Section 416(i) of the
Code) are taken into account for the purpose of determining the minimum
contribution under Code Section 416. However, Elective Contributions and
Matching Contributions made on behalf of non-key employees (as defined in Code
Section 416(i)) may not
17
<PAGE> 23
be taken into account for the purpose of satisfying the minimum contribution
requirement under Code Section 416.
2.3.5. MINIMUM ALLOCATION. In the event the Plan becomes a Top-Heavy
Plan during any Plan Year, the provisions of Section 2.6.1(a) shall apply.
2.3.6. FAIL-SAFE ALLOCATION. With respect only to nonstandardized
plans and notwithstanding any provision of the Plan or Adoption Agreement to the
contrary, for Plan Years beginning after December 31, 1989, if the Plan would
otherwise fail to satisfy the requirements of Section 401(a)(26), 410(b)(1) or
410(b)(2)(A)(i) of the Code and the regulations thereunder because Employer
contributions have not been allocated to a sufficient number or percentage of
Participants for the Plan Year, an additional contribution shall be made by the
Employer and shall be allocated to the Employer Accounts of affected
Participants subject to the following provisions:
(a) The Participants eligible to share in the allocation of
the Employer's contribution shall be expanded to include the minimum
number of Participants who are not otherwise eligible to the extent
necessary to satisfy the applicable test under the relevant Section
of the Code. The specific Participant who shall become eligible are
those Participants who are actively employed on the last day of the
Plan Year who have completed the greatest number of Hours of Service
during the Plan Year.
(b) If the applicable test is still not satisfied, the
Participants eligible to share in the allocation shall be further
expanded to include the minimum number of Participants who are not
employed on the last day of the Plan Year as are necessary to satisfy
the applicable test. The specific Participants who shall become
eligible are those Participants who have completed the greatest
number of Hours of Service during the Plan Year.
(c) A Participant's accrued benefit shall not be reduced by
any reallocation of amounts that have previously been allocated. To
the extent necessary, the Employer shall make an additional
contribution equal to the amount such affected Participants would
have received if they had originally shared in the allocations
without regard to the deductibility of the contribution. Any
adjustment to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day of the
Plan Year.
ARTICLE IV
BENEFITS
2.4.1. DISTRIBUTABLE BENEFIT. At such time that the employment of a
Participant terminates for any reason, he or his Beneficiary shall be entitled
to a benefit equal to the vested and nonforfeitable interest in his Accounts as
of the Distribution Date. Such Accounts shall include the allocable share of
contributions and forfeitures, if any, which may be allocated to said Accounts
as of such Distribution Date and shall be determined after making the
adjustments for which provision is made in the Plan.
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<PAGE> 24
2.4.2. VESTING. A Participant shall at all times be one hundred
percent (100%) vested and have a nonforfeitable interest in his Elective
Contribution Account, Qualified Non-Elective Contribution Account, Voluntary
Account and Segregated Account. The vested and nonforfeitable interest of the
Participant in his Controlled Account shall be determined by reference to the
Account from which the funds were originally transferred. The vested and
nonforfeitable interest in a Participant's Employer Account and Matching Account
shall be determined as hereinafter provided.
(a) NORMAL RETIREMENT. If a Participant terminates
employment at his Normal Retirement Age, he she be one hundred
percent (100%) vested and have a nonforfeitable interest in his
Employer Account and Matching Account.
(b) DEFERRED RETIREMENT. If a Participant continues in
active employment following his Normal Retirement Age, he shall
continue to participate under the Plan. From and after his Normal
Retirement Age, he shall be one hundred percent (100%) vested and
have a nonforfeitable interest in his Employer Account and Matching
Account.
(c) DISABILITY. If the employment of a Participant is
terminated prior to his Normal Retirement Age as a result of a
medically determinable physical or mental impairment which may be
expected to result in death or to last for a continuous period of not
less than twelve (12) months and which renders him incapable of
performing his duties, he shall be one hundred percent (100%) vested
and have a nonforfeitable interest in his Employer Account and
Matching Account. All determinations in connection with the
permanence and degree of such disability shall be made by the Plan
Administrator in a uniform, nondiscriminatory manner on the basis of
medical evidence.
(d) DEATH. In the event of the death of a Participant, he
shall be one hundred percent (100%) vested and have a nonforfeitable
interest in his Employer Account and Matching Account.
(e) TERMINATION OF PLAN. In the event of termination of the
Plan (including termination resulting from a complete discontinuance
of contributions by the Employer), each Participant shall be one
hundred percent (100%) vested and have a nonforfeitable interest in
his Employer Account and Matching Account. In the event of a partial
termination of the Plan, each Participant with respect to whom such
partial termination has occurred shall be one hundred percent (100%)
vested and have a nonforfeitable interest in his Employer Account and
Matching Account.
(f) EARLY RETIREMENT, RESIGNATION OR DISCHARGE. If the
employment of a Participant terminates by reason of early retirement,
resignation or discharge prior to his Normal Retirement Age, he shall
be vested and have a nonforfeitable interest in a percentage of his
Employer Account and Matching Account determined by, except as
provided below, taking into account all of his Years of Service as of
such termination date in accordance with the schedule set forth in
the Adoption Agreement.
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<PAGE> 25
2.4.3. LEAVE OF ABSENCE. A temporary cessation from active employment
with the Employer pursuant to an authorized leave of absence in accordance with
the nondiscriminatory policy of the Employer, whether occasioned by illness,
military service or any other reason shall not be treated as either a
termination of employment or a Break in Service provided that the Employee
returns to employment prior to the end of the authorized leave of absence.
2.4.4. RE-EMPLOYMENT. Unless otherwise elected by the Employer in the
Adoption Agreement, in the case of a Participant who has five (5) or more
consecutive Breaks in Service, all Years of Service after such Breaks in Service
shall be disregarded for the purposes of vesting the employer-derived account
balance that accrued before such breaks, but both pre-break and post-break
service shall count for the purposes of vesting the employer-derived account
balance that accrues after such breaks. Both accounts shall share in the
earnings and losses of the Trust Fund. In the case of a Participant who does not
have five (5) consecutive Breaks in Service, both the pre-break and post-break
service shall count in vesting both the pre-break and post-break
employer-derived account balance.
2.4.5. DISTRIBUTION DATE. The Distribution Date shall be determined
as hereinafter provided.
(a) GENERAL. For purposes of determining the amount to be
distributed, the Distribution Date shall be determined in the manner
specified in the Adoption Agreement.
(b) TERMINATION OF PLAN. In the event of termination of the
Plan (including termination resulting from a complete discontinuance
of contributions by the Employer), the Distribution Date shall be the
date of such termination. In the event of a partial termination of
the Plan, as to each Participant with respect to whom such partial
termination has occurred, the Distribution Date shall be the
Anniversary Date coinciding with or immediately following the date of
such partial termination.
(c) DISTRIBUTIONS FOLLOWING DISTRIBUTION DATE. Subject to
the necessity, if any, of obtaining the consent of a Participant and
spouse, distribution of a Participant's Distributable Benefit shall
commence within a reasonable period after the Distribution Date,
unless otherwise elected by the Participant in accordance with the
provisions of the Plan or as required by the provisions of the Plan.
2.4.6. FORFEITURES. If an Employee terminates service, and the value
of the Employee's vested account balance derived from employer and employee
contributions is not greater than $3,500 and the Employee receives a
distribution of the value of the entire vested portion of such account balance,
the nonvested portion shall be treated as a forfeiture as of the last day of the
Plan Year in which the Participant's entire vested interest is distributed from
the Plan. If the value of an Employee's vested account balance is zero, the
Employee shall be deemed to have received a distribution of such vested account
balance. A participant's vested account balance shall not include accumulated
deductible employee contributions within the meaning of section 72(o)(5)(B) of
the Code for plan years beginning prior to January 1, 1989.
20
<PAGE> 26
Unless otherwise elected in the Adoption Agreement, if an Employee terminates
service, and elects, in accordance with the provisions of the Plan, to receive
the value of the employee's vested account balance, the nonvested portion shall
be treated as a forfeiture. If the Employee elects to have distributed less than
the entire vested portion of the account balance derived from employer
contributions, the part of the nonvested portion that will be treated as a
forfeiture is the total nonvested portion multiplied by a fraction, the
numerator of which is the amount of the distribution attributable to employer
contributions and the denominator of which is the total value of the vested
employer derived account balance.
If an Employee receives a distribution and the Employee resumes employment
covered under the Plan, the Employee's employer-derived account balance shall be
restored to the amount on the date of distribution if the Employee repays to the
Plan the full amount of the distribution attributable to Employer contributions
before the earlier of five (5) years after the first date on which the
Participant is subsequently re-employed by the Employer, or the date the
Participant incurs five (5) consecutive Breaks in Service following the date of
the distribution. If an Employee is deemed to receive a distribution pursuant to
this section, and the Employee resumes employment covered under the Plan before
the date the Participant incurs five (5) consecutive Breaks in Service, upon the
reemployment of such Employee, the employer-derived account balance of the
Employee will be restored to the amount on the date of such deemed distribution.
Unless otherwise elected in the Adoption Agreement, such forfeiture shall be
allocated in the same manner as a contribution by the Employer for the Year in
which said forfeiture occurred. Notwithstanding any provision herein to the
contrary, forfeitures resulting from contributions by an Employer shall not be
reallocated for the benefit of another adopting Employer.
If a Participant is re-employed following a Break in Service and is entitled to
restoration of any amount of his Accounts which was forfeited as a result of
such Break in Service, such amount shall be restored in the manner specified in
the Adoption Agreement.
ARTICLE V
DISTRIBUTIONS
2.5.1. COMMENCEMENT OF DISTRIBUTION.
(a) IMMEDIATE DISTRIBUTION. A Participant whose employment
is terminated for any reason, other than resignation or discharge
prior to his Early Retirement Date or his Normal Retirement Date, may
elect upon his termination of employment to begin distribution of his
Distributable Benefit within a reasonable period after the
Distribution Date as of which his Distributable Benefit is
determined, or as of the date determined under subsection (b), below,
if that date is earlier. If a Participant does not so elect,
distribution of the Participant's Distributable Benefit shall in no
event begin later than the date determined under subsection (b),
below.
(b) DEFERRED DISTRIBUTION. Except in the case of amounts
subject to Section 2.5.2(h) for which a Participant's consent is not
required, unless the Employer elects in the Adoption Agreement to
permit the Employee to elect earlier commencement
21
<PAGE> 27
and the Employee so elects or the Employee elects to further defer
distribution, if the employment of a Participant is terminated by
reason of resignation or discharge prior to either his Early
Retirement Date or his Normal Retirement Date, distribution of his
Distributable Benefit shall be deferred and commenced on the sixtieth
(60th) day after the close of the later of the following Plan Years:
(i) The Plan Year during which the Participant
attains the earlier of age sixty-five (65) or the Normal Retirement
Age;
(ii) The Plan Year during which the tenth (10th)
anniversary of the commencement of the Participant's participation in
the Plan occurs; or
(iii) The Plan Year during which the Participant
terminates service with the Employer.
If, however, the Employer selects an Early Retirement Date in the Adoption
Agreement, a Participant who terminates employment before satisfying the age
requirement for early retirement but has satisfied any service requirement shall
be entitled to a distribution of his Distributable Benefit in accordance with
subsection (a) above upon attaining such age. If distribution is so deferred,
unless otherwise determined by the Plan Administrator, the Trustee at the Plan
Administrator's direction shall transfer the Distributable Benefit to a
Segregated Fund from which distribution shall thereafter be made. Such transfer
shall be made as of the Distribution Date. Notwithstanding the foregoing, the
failure of a Participant and spouse to consent to a distribution while a benefit
is immediately distributable, within the meaning of Section 2.5.2(j), shall be
deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
(c) REQUIRED DISTRIBUTION. Notwithstanding anything herein
to the contrary, unless the Participant has made an appropriate
election by December 31, 1983 to defer distribution which has not
been revoked or modified, the Participant's benefit shall be
distributed to the Participant not later than April 1 of the calendar
year following the calendar year in which he attains age 70-1/2 (the
required beginning date) or shall be distributed, commencing not
later than April 1 of such calendar year in accordance with
regulations prescribed by the Secretary of the Treasury over a period
not extending beyond the life expectancy of the Participant or the
life expectancy of the Participant and a beneficiary designated by
the Participant. The amount required to be distributed for each
calendar year, beginning with distributions for the first
distribution calendar year, must at least equal the quotient obtained
by dividing the Participant's benefit by the applicable life
expectancy. Unless otherwise elected by the Participant (or spouse,
if distributions begin after death and the spouse is the designated
beneficiary) by the time distributions are required to begin, the
life expectancy of the Participant and the Participant's spouse shall
be recalculated annually. Other than for a life annuity, such
election shall be irrevocable as to the Participant or spouse and
shall apply to-all subsequent years. The life expectancy of a
non-spouse beneficiary may not be recalculated. Life expectancy and
joint and last survivor expectancy shall be computed by use of the
expected return multiples in Tables V and VI of Section 1.72-9 of the
Treasury Regulations. For calendar years beginning after December 31,
1988, the
22
<PAGE> 28
amount to be distributed each year, beginning with distributions for
the first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the lesser
of (1) the applicable life expectancy or (2) if the Participant's
spouse is not the designated beneficiary, the applicable divisor then
determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2
of the proposed regulations. Distributions after the death of the
Participant shall be distributed using the applicable life expectancy
as the relevant divisor without regard to Proposed Regulations
Section 1.401(a)(9)-2.
The minimum distribution for subsequent calendar years, including the minimum
distribution for the distribution calendar year in which the Participant's
required beginning date occurs, must be made on or before December 31 of that
distribution calendar year.
(d) DISTRIBUTION AFTER DEATH. Unless the Participant has
made an appropriate election by December 31, 1983 to extend the
period of distribution after his death and the election has not been
revoked or modified, the following provisions shall apply. If
distribution of the Participant's benefit has begun and the
Participant dies before his entire benefit has been distributed to
him, the remaining portion of such benefit shall be distributed at
least as rapidly as under the method of distribution being used as of
the date of the Participant's death.
If the Participant dies before the distribution of his benefit has begun, the
entire interest of the Participant shall be distributed by December 31 of the
calendar year containing the fifth (5th) anniversary of the death of such
Participant, provided that if any portion of the Participant's benefit is
payable to or for the benefit of a designated beneficiary and such portion is to
be distributed in accordance with regulations issued by the Secretary of the
Treasury over the life of, or over a period not extending beyond the life
expectancy of such designated beneficiary, such distributions shall begin not
later than December 31 of the calendar year immediately following the calendar
year of the Participant's death or such later date as may be provided by
regulations issued by the Secretary of the Treasury. If the designated
beneficiary is the surviving spouse of the Participant the date on which the
distributions are required to begin shall not be earlier than the later of
December 31 of the calendar year immediately following the calendar year in
which the Participant had died and December 31 of the calendar year in which the
Participant would have attained age 70-1/2. If the surviving spouse thereafter
dies before the distributions to such spouse begin and any benefit is payable to
a contingent beneficiary, the date on which distributions are required to begin
shall be determined as if the surviving spouse were the Participant.
If the Participant has not specified the manner in which benefits are payable by
the time of his or her death, the Participant's designated beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated beneficiary, or if the designated beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
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<PAGE> 29
(e) PAYMENTS TO CHILDREN. In accordance with regulations
issued by the Secretary of the Treasury, any amount paid to a child
shall be treated as if it had been paid to the surviving spouse if
such amount shall become payable to the surviving spouse upon such
child reaching majority (or other designated event permitted under
such regulations).
(f) INCIDENTAL DEATH BENEFIT DISTRIBUTIONS. Any
distribution required by the rules applicable to incidental death
benefits shall be treated as a distribution required by this Section.
All distributions required under this Section shall be determined and
made in accordance with the proposed regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the proposed
regulations.
(g) DISTRIBUTIONS. For the purposes of this section,
distribution of a Participant's interest is considered to begin on
the Participant's required beginning date or the date distribution is
required to begin to the surviving spouse. If distribution in the
form of an annuity irrevocably commences to the Participant before
the required beginning date, the date distribution is considered to
begin is the date distribution actually commences.
(h) DEFINITIONS.
(1) APPLICABLE LIFE EXPECTANCY. The life
expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or
designated beneficiary) as of the Participant's (or
designated beneficiary's) birthday in the applicable
calendar year reduced by one for each calendar year which
has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as
so recalculated. The applicable calendar year shall be the
first distribution calendar year, and if life expectancy is
being recalculated such succeeding calendar year.
(2) DESIGNATED BENEFICIARY. The individual who is
designated as the beneficiary under the Plan in accordance
with Section 401(a)(9) and the proposed regulations
thereunder.
(3) DISTRIBUTION CALENDAR YEAR. A calendar year
for which a minimum distribution is required. For
distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions
beginning after the Participant's death, the first
distribution calendar year is the calendar year in which
distributions are required to begin.
(4) PARTICIPANT'S BENEFIT.
(i) The account balance as of the last
valuation date in the calendar year immediately
preceding the distribution calendar year
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<PAGE> 30
(valuation calendar year) increased by the amount
of any contributions or forfeitures allocated to
the account balance as of dates in the valuation
calendar year after the valuation date and
decreased by distributions made in the valuation
calendar year after the valuation date.
(ii) Exception for second distribution
calendar year. For purposes of paragraph (i)
above, if any portion of the minimum distribution
for the first distribution calendar year is made
in the second distribution calendar year on or
before the required beginning date, the amount of
the distribution made in the second distribution
calendar year shall be treated as if it had been
made in the immediately preceding distribution
calendar year.
(5) REQUIRED BEGINNING DATE.
(i) GENERAL RULE. The required
beginning date of a Participant is the first day
of April of the calendar year following the
calendar year in which the Participant attains
age 70 1/2.
(ii) TRANSITIONAL RULES. The required
beginning date of a Participant who attains age
70 1/2 before January 1, 1988, shall be
determined in accordance with (I) or (II) below:
(I) NON-5-PERCENT OWNERS.
The required beginning date of a
Participant who is not a 5-percent
owner is the first day of April of the
calendar year following the calendar
year in which the later of retirement
or attainment of age 70 1/2 occurs.
(II) 5-PERCENT OWNERS. The
required beginning date of a
Participant who is a 5-percent owner
during any year beginning after
December 31, 1979, is the first day of
April following the later of:
(A) the calendar year in
which the Participant attains age 70
1/2, or
(B) the earlier of the
calendar year with or within which
ends the Plan Year in which the
Participant becomes a 5-percent owner,
or the calendar year in which the
Participant retires.
The required beginning date of a Participant who is not a
5-percent owner who attains age 70 1/2 during 1988 and who has
not retired as of January 1, 1989, is April 1, 1990.
(iii) 5-PERCENT OWNER. A Participant
is treated as a 5-percent owner for purposes of
this section if such Participant is a 5-percent
owner as defined in Section 416(i) of the Code
(determined in accordance with
25
<PAGE> 31
Section 416 but without regard to whether the
Plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in
which such owner attains age 66 1/2 or any
subsequent Plan Year.
(iv) Once distributions have begun to
a 5-percent owner under this section, they must
continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a
subsequent year.
(i) TRANSITIONAL RULE.
(1) Notwithstanding the other requirements of
this Section and subject to the requirements of Section
2.5.2, distribution on behalf of any, employee, including a
5-percent owner, may be made in accordance with all of the
following requirements (regardless of when such
distribution commences):
(a) The distribution by the trust is one which
would not have disqualified such trust under Section
401(a)(9) of the Internal Revenue Code as in effect prior
to amendment by the Deficit Reduction Act of 1984.
(b) The distribution is in accordance with a
method of distribution designated by the employee whose
interest in the trust is being distributed or, if the
employee is deceased, by a beneficiary of such employee.
(c) Such designation was in writing, was signed
by the employee or the beneficiary, and was made before
January 1, 1984.
2.5.2. METHOD OF DISTRIBUTION. Subject to the provisions of Section
2.5.1 above and any security interest in a loan from the Plan for which any
necessary spousal consent has been obtained (to the extent such security
interest is used as repayment of the loan), distribution shall be made by one of
the following methods, as determined in accordance with the election of the
Participant (or in the case of death, his Beneficiary) with such spousal
consents as may be required by law:
(a) In a single distribution, as designated by the Employer
in the Adoption Agreement;
(b) In substantially equal annual, quarterly or monthly
installments over a period of more than one year but which does not
exceed the period designated in the Adoption Agreement, as selected
by the Participant (provided that such period is not greater than the
Participant's life expectancy as of the annuity starting date), plus
accrued net income. If distribution is to be so made in installments,
the Plan Administrator shall cause the undistributed portion of the
Distributable Benefit to be transferred to a Segregated Fund, from
which installment payments shall thereafter be withdrawn from time to
time.
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<PAGE> 32
(c) By the purchase and delivery of a single premium,
nontransferable, fully refundable, annuity policy issued by a legal
reserve life insurance company providing for payments over such
period as may be designated in the Adoption Agreement as selected by
the Participant; provided, however, unless the Employer has
designated a life annuity distribution option in the Adoption
Agreement, in the event of distribution of such an annuity policy to
a Participant, such duration shall be for a fixed duration which is
less than the Participant's life expectancy as of the annuity
starting date. The refund feature under such annuity policy following
the death of the Participant shall inure to the benefit of the person
or persons designated by the Participant as his Beneficiary.
(d) Any alternative method of equivalent value contained in
the Plan at any time on or after the first day of the first Plan Year
beginning after 1988 to which the Participant consents.
(e) ANNUITY PAYMENTS
(1) REQUIREMENT OF ANNUITY PAYMENT. The
provisions of this Section 2.5.2(e) shall apply to any
Participant who is credited with at least one Hour of
Service with the Employer on or after August 23, 1984, and
such other Participants as provided in Section 2.5.2(k).
Unless an optional form of benefit is selected pursuant to
a qualified election within the 90-day period ending on the
annuity starting date, a married Participant's vested
Account balance will be paid in the form of a Joint and
Survivor Annuity and an unmarried Participant's vested
Account balance will be paid in the form of a life annuity.
Unless an optional form of benefit has been selected within
the election period pursuant to a qualified election, if a
Participant dies before the annuity starting date then the
Participant's vested Account balance shall be applied
toward the purchase of a Preretirement Survivor Annuity.
Notwithstanding the other provisions of this Section
2.5.2(e), if the Plan is designated in the Adoption
Agreement as a Cash or Deferred Profit Sharing Plan or a
Profit Sharing Plan and the Employer does not designate a
life annuity distribution option in the Adoption Agreement,
the Qualified Joint and Survivor Annuity and Preretirement
Survivor Annuity forms of distribution shall not be
available. However, a Participant's surviving spouse shall
be entitled to elect distribution of the Participant's
vested Account balance in the manner provided by Section
3.8.3.
A Participant's vested Account balance is the aggregate
value of the Participant's vested account balances derived
from employer and employee contributions (including
rollovers), whether vested before or upon death, including
the proceeds of insurance contracts, if any, on the
Participant's life. The provisions hereof shall apply to a
Participant who is vested in amounts attributable to
employer contributions, employee contributions (or both) at
the time of death or distribution.
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<PAGE> 33
The Participant may elect to have such annuity distributed
upon attainment of the earliest retirement age under the
Plan. A surviving spouse may elect to have such annuity
distributed within the ninety (90) day period commencing on
the date of the Participant's death.
(2) ELECTION TO WAIVE ANNUITY PAYMENT. A
Participant may elect at any time during the applicable
election period to waive the Joint and Survivor Annuity
form of benefit or the Preretirement Survivor Annuity form
of benefit (or both) and may revoke any such election at
any time during the applicable election period.
(3) SPOUSAL CONSENT REQUIRED. An election to
waive any annuity form of benefit shall not take effect
unless the spouse of the Participant consents in writing to
the election, such election designates a specific
beneficiary, including any class of beneficiaries or
contingent beneficiaries, or, solely in the case of a
waiver of a Joint and Survivor Annuity, a form of benefits
which may not be changed without spousal consent (or the
consent of the spouse expressly permits designations by the
Participant without any requirement of further consent by
the spouse), and the spouse's consent acknowledges the
effect of such election and is witnessed by a Plan
representative or a notary public, or it is established to
the satisfaction of the Plan Administrator that such
consent cannot be obtained because there is no spouse or
because the spouse cannot be located. A spouse may not
revoke the consent without the approval of the Participant.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such
spouse. A consent that permits designations by the
Participant without any requirement of further consent by
such spouse must acknowledge that the spouse has the right
to limit consent to a specific beneficiary, and a specific
form of benefit where applicable, and that the spouse
voluntarily elects to relinquish either or. both of such
rights. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time
before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under
this provision shall be valid unless the Participant has
received notice as provided in subsection (4) below.
(4) WRITTEN EXPLANATIONS. The Plan Administrator
shall provide each Participant no less than 30 days and no
more than 90 days before the annuity starting date a
written explanation of -
(a) the terms and conditions of a Joint
and Survivor Annuity;
(b) the Participant's right to make and
the effect of an election to waive the Joint and
Survivor Annuity form of benefit;
(c) the rights of the Participant's
spouse to consent to a Participant's election;
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<PAGE> 34
(d) the right to make and the effect of
a revocation of an election.
The Plan Administrator shall provide to each Participant
within the applicable period a written explanation of a
Preretirement Survivor Annuity comparable to that provided
with respect to a Joint and Survivor Annuity.
(5) APPLICABLE PERIOD. The applicable period
means with respect to a Participant, whichever of the
following periods ends last:
(a) The period beginning with the first
day of the Plan Year in which the Participant
attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the
Participant attains age 35.
(b) A reasonable period ending after
the individual becomes a Participant.
(c) A reasonable period ending after
the Plan ceases to fully subsidize costs.
(d) A reasonable period ending after
Section 401(a)(11) of the Code first applies to
the Participant.
(e) A reasonable period ending after
separation from service in case of a Participant
who separates before attaining age 35.
For purposes of applying the foregoing, a
reasonable period ending after the enumerated
events described in (b), (c) and (d) is the end
of the two-year period beginning one year prior
to the dale the applicable event occurs and
ending one year after that date. In the case of a
Participant who separates from service before the
Plan Year in which age 35 is attained, notice
shall be provided within the two-year period
beginning prior to separation and ending one year
after separation. If such a Participant there
after returns to employment with the Employer,
the applicable period for such Participant shall
be redetermined.
(6) APPLICABLE ELECTION PERIOD. The applicable
election period means -
(a) in the case of an election to waive
a Joint and Survivor Annuity, the ninety (90) day
period ending on the annuity starting date; and
(b) in the case of an election to waive
a Preretirement Survivor Annuity, the period
which begins on the first day of the Plan Year in
which the Participant attains age thirty-five
(35) and ends on the date of the Participant's
death; provided that in the case of a Participant
who is
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<PAGE> 35
separated from service, such period shall not
begin later than the date of such separation from
service.
A Participant who will not yet attain age 35 as
of the end of any current Plan Year may make a
special qualified election to waive the
Preretirement Survivor Annuity for the period
beginning on the date of such election and ending
on the first day of the Plan Year in which the
Participant Will attain age 35. Such election
shall not be valid unless the Participant
receives a written explanation of the
Preretirement Survivor Annuity in such terms as
are comparable to the explanation required under
subsection (4). Preretirement Survivor Annuity
coverage will be automatically reinstated as of
the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or
after such date shall be subject to the full
requirements of this section.
(7) ANNUITY STARTING DATE. The annuity starting
date means the first day of the first period for which an
amount is payable as an annuity or any other form.
(8) MARRIAGE REQUIREMENT. Notwithstanding the
foregoing, the benefits under the Plan shall not be
provided in the form of a Joint and Survivor Annuity or a
Preretirement Survivor Annuity unless the Participant and
his spouse have been married throughout the one (1) year
period ending on the earlier of the Participant's annuity
starting date or the date of the Participant's death. If a
Participant marries within one (1) year before the annuity
starting date and the Participant and his spouse in such
marriage have been married for at least a one (1) year
period ending on or before the date of the Participant's
death, the Participant and such spouse shall be treated as
having been married throughout the required period. A
former spouse shall be treated as the spouse or surviving
spouse and a current spouse will not be treated as the
spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in Section
414(p) of the Code.
(f) TERMS OF ANNUITY CONTRACTS. Any annuity contract
distributed from the Plan must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a
Participant or spouse shall comply with the requirements of the Plan.
If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall
be made in accordance with the requirements of Section 401(a)(9) of
the Code and the proposed regulations thereunder.
(g) INCIDENTAL DEATH BENEFITS. For calendar years beginning
before January 1, 1989, if the Participant's spouse is not the
designated Beneficiary, the method of distribution selected must
assure that at least fifty (50%) percent of the present value of the
amount available for distribution is paid within the life expectancy
of the Participant.
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<PAGE> 36
(h) CONSENTS. If the value of a Participant's vested
account balance derived from Employer and Employee contributions does
not exceed (and at the time of any prior distribution did not exceed)
$3,500, the consent of the Participant and his or her spouse shall
not be required; provided that if such value exceeds $3,500, the
Participant and spouse (or where either has died, the survivor) must
consent to any distribution of such account balance. The consent
shall be obtained in writing within the 90 day period ending on the
annuity starting date. Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a
distribution is required to satisfy Section 401(a)(9) or Section 415
of the Code. In addition, upon termination of the Plan if the Plan
does not offer an annuity option (purchased from a commercial
provider) and if the Employer or any entity within the same
controlled group does not maintain another defined contribution plan
(other than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code), the Participant's account balance in the
Plan will, without the Participant's consent, be distributed to the
Participant. However, if any entity within the same controlled group
as the Employer maintains another defined contribution plan (other
than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code), then the Participant's account balance will
be transferred, without the Participant's consent, to the other Plan
if the Participant does not consent to an immediate distribution.
(i) ZERO BENEFITS. If the value of the Participant's vested
and nonforfeitable interest in the Plan at the time of his
termination of employment is zero, the Participant shall be deemed to
have received a distribution of such interest.
(j) RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS. The Plan
Administrator shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the Participant's
account balance in the Plan is no longer immediately distributable.
Such notification shall include a general description of the material
features and an explanation of the relative values of the optional
forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the Code and
shall be provided no less than 30 days and no more than 90 days prior
to the annuity starting date. Notwithstanding the foregoing, only the
Participant need consent to the commencement of a distribution in the
form of a qualified joint and survivor annuity while the
Participant's account balance in the Plan is immediately
distributable. Furthermore, if payment in the form of a qualified
joint and survivor annuity is not required with respect to the
Participant pursuant to the Plan, only the Participant need consent
to the distribution of an account balance that is immediately
distributable. The Participant's account balance is immediately
distributable if any part of the Participant's account balance could
be distributed to the Participant (or surviving spouse) before the
Participant attains (or would have attained if not deceased) the law
of age 62 or the Normal Retirement Age.
(k) TRANSITIONAL RULES.
(1) Any living Participant not receiving
benefits on August 23, 1984, who would otherwise not
receive the benefits prescribed by the previous sections of
the article must be given the opportunity to elect to have
the prior sections of
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<PAGE> 37
this article apply if such Participant- is credited with at
least one hour of service under this Plan or a predecessor
plan in a Plan Year beginning on or after January 1, 1976,
and such Participant has at least 10 years of vesting
service when he or she separated from service.
(2) Any living Participant not receiving benefits
on August 23, 1984, who was credited with at least one hour
of service under this Plan or a predecessor plan on or
after September 2, 1974, and who is not otherwise credited
with any service in a plan Year beginning on or after
January 1, 1976, must be given the opportunity to have his
or her benefits paid in accordance with Section (4) below.
(3) The respective opportunities to elect (as
described above) must be afforded to the appropriate
Participants during the period commencing on August 23,
1984, and ending on the date benefits would otherwise
commence to said Participants.
(4) Any Participant who has elected pursuant to
Section (2) above and any Participant who does not elect
under Section (1) or who meets the requirements of Section
(1) except that such Participant does not have at least 10
years of vesting service when he or she separates from
service, shall have his or her benefits distributed in
accordance with all of the following requirements if
benefits would have been payable in the form of a life
annuity:
(i) AUTOMATIC JOINT AND SURVIVOR ANNUITY. If
benefits in the form a life annuity become
payable to a married Participant who:
(1) begins to receive payments under
the Plan on or after normal retirement age; or
(2) dies on or after normal retirement
age while still wording for the Employer; or
(3) begins to receive payments on or
after the qualified early retirement age; or
(4) separates from service on or after
attaining normal retirement age (or the qualified
early retirement age) and after satisfying the
eligibility requirements for the payment of
benefits under the plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be received
under this Plan in the form of a qualified joint
and survivor annuity, unless the Participant has
elected otherwise during the election period. The
election period must begin at least 6 months
before the Participant attains qualified early
retirement age and end not more than 90 days
before the
32
<PAGE> 38
commencement of benefits. Any election hereunder
will be in writing and may be changed by the
Participant at any time.
(ii) ELECTION OF EARLY SURVIVOR ANNUITY. A
Participant who is employed after attaining the
qualified early retirement age will be given the
opportunity to elect, during the election period,
to have a survivor annuity payable on death. If
the Participant elects the survivor annuity,
payments under such annuity must not be less than
the payments which would have been made to the
spouse under the qualified joint and survivor
annuity if the Participant had retired on the day
before. his or. her death. Any election under
this provision will be in writing and may be
changed by the Participant at any time. The
election period begins on the later of (1) the
90th day before the Participant attains the
qualified early retirement age, or (2) the date
on which participation begins, and ends on the
date the Participant terminates employment.
(iii) FOR PURPOSES OF THIS SECTION (4):
(1) Qualified early retirement age is the later
of:
(i) the earliest date, under the Plan,
on which the Participant may elect
to receive retirement benefits,
(ii) the first day of the 120th month
beginning before the Participant
reaches normal retirement age, or
(iii) the date the Participant begins
participation.
(2) Qualified joint and survivor annuity is an
annuity for the life of the Participant with a
survivor annuity for the life of the spouse as
otherwise described in the Plan.
2.5.3. NATURE OF DISTRIBUTIONS. The nature of the distribution of a
Participant's Distributable Benefit shall be as hereinafter provided.
(a) TRUST FUND AND SEGREGATED FUNDS. Subject to the Joint
and Survivor Annuity requirements, except as provided in subsection
(b) with regard to Life Insurance Policies, distribution of a
Participant's Distributable Benefit shall consist of cash or
property, or an annuity contract as provided in Section 2.5.2 above.
(b) INSURANCE POLICIES. In the event that the Trustee has
purchased Life Insurance Policies on the life of the Participant, the
values and benefits available with respect to each such Policy shall
be distributed as follows:
(i) If the Participant's employment terminates for any
reason other than death, then the Trustee shall either surrender the
Life Insurance Policy for its available cash value and distribute the
proceeds as provided in subsection (a) above or, at the election of
the Participant, distribute the Life Insurance Policy to the
Participant,
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<PAGE> 39
provided the Participant has a vested and nonforfeitable interest in
his Accounts in an amount at least equal to the cash value thereof.
(ii) If the Participant's employment terminates by reason
of death, the beneficiary designated by the Participant in accordance
with the terms of the Plan shall be entitled to receive from the
Trustee the full amount of the proceeds thereof.
The Trustee shall apply for and be the owner of any Policies
purchased under the terms of the Plan. The Policies must provide that
the proceeds are payable to the Trustee subject to the Trustee's
obligation to pay over the proceeds to the designated Beneficiary. A
Participant's spouse will be the designated beneficiary of the
proceeds of such Policies unless a qualified election has been made
in accordance with Section 2.5.2(e) of the Plan, if applicable. Under
no circumstances shall the trust retain any part of the proceeds. In
the event of any conflict between the terms of the Plan and the terms
of any Policies purchased hereunder, the Plan provisions shall
control.
2.5.4. ADVANCE DISTRIBUTIONS. If the Employer elects in the Adoption
Agreement to permit advance distribution to a Participant or his Beneficiary
after his employment has terminated and before he is otherwise entitled to
distribution of his Distributable Benefit but in no event earlier than a
reasonable period following the Distribution Date, the Trustee upon the request
of the Participant or Beneficiary shall make advance distributions to him or to
his Beneficiary. The aggregate of such an advance distribution shall not exceed
the sum of the vested and nonforfeitable interest in the Participant's Accounts.
If the Employer elects in the Adoption Agreement to forfeit nonvested amounts
immediately upon distribution of the Employee's entire vested account balance on
termination of service, an Employee who terminates service and elects to receive
the value of the Employee's vested account balance shall forfeit the nonvested
portion. If the Employee elects to have distributed less than the entire vested
portion of the account balance derived from Employer contributions, the part of
the nonvested portion that is treated as a forfeiture is the total nonvested
portion multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to Employer contributions and the denominator of which
is the total value of the vested Employer derived account balance.
Except as provided in the preceding paragraph, if a Participant receives a
distribution which reduces the balance in his Employer Account when he has less
than a one hundred percent (100%) vested and nonforfeitable interest in the
Account, the amount, if any, of the Participant's vested and nonforfeitable
interest in the undistributed balance of said Account on his Accrual Date shall
be transferred to a Segregated Account and shall not be less than an amount
("X") determined by the formula: X = P (AB + (R x D)) - (R x D). For purposes of
applying the formula: P is the vested percentage at the relevant time; AB is the
account balance at the relevant time; and D is the amount of the distribution;
and R is the ratio of the account balance at the relevant time to the account
balance after distribution.
2.5.5. HARDSHIP DISTRIBUTIONS. If the Plan is designated in the
Adoption Agreement as a Cash or Deferred Profit Sharing Plan or a Profit Sharing
Plan and the Employer elects in the Adoption Agreement to permit hardship
distributions, a Participant may request a distribution
34
<PAGE> 40
from the Plan as a result of immediate and heavy financial needs of the
Participant to the extent that the distribution is necessary to satisfy such
financial needs. Hardship distributions are subject to the spousal consent
requirements contained in Sections 401(a)(11) and 417 of the Code. The
determination of whether a Participant has an immediate and heavy financial need
shall be made by the Plan Administrator on the basis of all relevant facts and
circumstances. A distribution shall be deemed to be made on account of an
immediate and heavy financial need if the distribution is on account of:
(a) Deductible medical expenses described in Section 213(d)
of the Code incurred or necessary for medical care of the
Participant, his spouse or dependents;
(b) Purchase (excluding mortgage payments) of a principal
residence for the Participant;
(c) Cost of tuition and related educational fees for the
next 12 months of post-secondary education for the Participant, his
spouse, children or dependents; or
(d) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
A distribution shall be considered as necessary to satisfy an immediate and
heavy financial need of the Participant only if:
(a) The Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans under all plans
maintained by the Employer;
(b) All plans maintained by the Employer provide that the
Participant's elective Deferrals and employee contributions shall be
suspended for twelve (12) months after the receipt of the hardship
distribution;
(c) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts necessary to
pay any federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution); and
(d) All plans maintained by the Employer provide that the
Participant may not make Elective Deferrals for the Participant's
taxable year immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Section 402(g)
of the Code for such taxable year less the amount of such
Participant's Elective Deferrals for the taxable year of the hardship
distribution.
In the event of such distribution, when a Participant is less than one hundred
percent (100%) vested in his Employer Account or Matching Account, the vested
interest in the Employer Account or Matching Account shall thereafter be
determined in accordance with Section 2.5.4 of the Plan.
2.5.6. IN SERVICE DISTRIBUTIONS.
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<PAGE> 41
(a) CASH OR DEFERRED PROFIT SHARING PLANS. If the Plan is
designated in the Adoption Agreement as a Cash or Deferred Profit
Sharing plan and if the Employer elects in the Adoption Agreement to
permit distributions to a Participant after attaining age 59 1/2 but
prior to his termination of employment, a Participant shall be
entitled to receive a distribution of all or a part of his interest
in the Plan upon filing a written request with the Plan
Administrator; provided that no distribution shall be made unless the
interest of the Participant in the Account from which the
distribution is to be made is fully vested and nonforfeitable and the
balance in the Account to be distributed has accumulated for at least
two (2) years or the individual has been a Participant for five (5)
or more Plan Years; and the distribution of Elective Deferrals and
Qualified Non-Elective Contributions satisfy the limitations imposed
by Part II, Article VII. Any distribution shall be subject to the
written consent of the Participant's spouse.
(b) PROFIT SHARING PLANS. If the Plan is designated in the
Adoption Agreement as a Profit Sharing Plan and if the Employer
elects in the Adoption Agreement to permit distributions to a
Participant prior to his termination of employment, a Participant
shall be entitled to receive a distribution of all or part of his
interest in the Plan upon filing a written request with the Plan
Administrator; provided that no distribution shall be made unless the
interest of the Participant in the Account from which the
distribution is to be made is fully vested and nonforfeitable and the
balance in the Account to be distributed has accumulated for at least
two (2) years or the individual has been a Participant for five (5)
or more Plan Years; provided further that in-service distributions
shall be permitted subject to the terms of Section 2.5.5 if the
Employer elects in the Adoption Agreement to have such provision
apply. Any distribution shall be subject to the written consent of
the Participant's spouse.
(c) ALL PLANS. Upon attainment of his Normal Retirement
Date, a Participant shall be entitled to receive a distribution of
all or a part of his interest in the Plan upon filing a written
request with the Plan Administrator. In service distributions are
permitted at the election of the Participant for amounts held in a
Segregated Account attributable to a rollover from another plan
regardless of age or periods of participation. Any distribution shall
be subject to the written consent of the Participant's spouse.
ARTICLE VI
CONTINGENT TOP HEAVY PROVISIONS
2.6.1. TOP HEAVY REQUIREMENTS. If the Plan becomes a Top Heavy Plan
during any Plan Year, the following provisions shall supersede any conflicting
provisions in the Plan or Adoption Agreement and apply for such Plan Year:
(a) Except as otherwise provided below, the Employer
contributions and forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of three
percent of such Participant's Compensation or in the case where the
Employer has no defined benefit plan which designates this plan to
satisfy Section 401 of the Code, the largest percentage of Employer
contributions and
36
<PAGE> 42
forfeitures, as a percentage of the first $200,000 of the Key
Employee's compensation, allocated on behalf of any Key Employee for
that year. The minimum allocation is determined without regard to any
Social Security contribution. This minimum allocation shall be made
even though, under other plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or would have
received a lesser allocation for the year because of (i) the
Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the plan), or (ii) the Participant's failure
to make mandatory employee contributions to the plan, or (iii)
compensation less than a stated amount.
Neither Elective Deferrals nor Matching Contributions may be taken into account
for the purpose of satisfying the minimum allocation.
For purposes of computing the minimum allocation, Compensation shall mean a
Participant's compensation as defined in Section 3.2.1(h) of the Plan.
The minimum allocation provided above shall not apply to any Participant who was
not employed by the Employer on the last day of the Plan Year.
The minimum allocation provided above shall not apply to any Participant to the
extent the Participant is covered under any other plan or plans of the Employer
and Employer has provided in the Adoption Agreement that the minimum allocation
or benefit requirement applicable to top-heavy plans will be met in the other
plan or plans.
(b) References in Section 3.2.1(d), pertaining to combined
plan limitations, to "1.25" shall be applied by substituting "1.0"
for "1.25" therein. Reference in Section 3.2.l(e), pertaining to a
special transition rule, to "$51,875" shall be applied by
substituting "$41,500" for "$51,875" therein.
(c) The vested and nonforfeitable interest of each
Participant shall be equal to the percentage determined under the
vesting schedule specified in the Adoption Agreement if the Plan
becomes a Top Heavy Plan, or if no vesting schedule is specified, the
percentage determined under the following schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENTAGE
<S> <C> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
The top-heavy minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code, except those attributable to employee
contributions, including benefits accrued before the effective date of Section
416 of the Code and benefits accrued before the Plan becomes top-heavy.
37
<PAGE> 43
No decrease in a Participant's nonforfeitable percentage may occur in the event
the Plan's status as top-heavy changes for any Plan Year. Any minimum allocation
required (to the extent required to be nonforfeitable under Section 416(b)) may
not be forfeited under Section 411 (a)(3)(B) or (D) of the Code.
2.6.2. TOP HEAVY DEFINITIONS. The following terms, as used in this
Plan, shall have the following meaning:
(a) "Key Employee": An Employee or former employee who, at
any time during the Determination Period is either:
(i) an officer of the Employer having an Annual
Compensation greater than fifty (50%) percent of the amount
in effect under Section 415(b)(1)(A) of the Code;
(ii) an owner (or a person considered an owner
under Section 318 of the Code) of one of the ten largest
interests in the Employer if such individual's Annual
Compensation from the Employer is more than the limitation
in effect under Section 415(c)(1)(A) of the Code;
(iii) any person who owns directly or indirectly
more than five (5%) percent of the outstanding stock of the
Employer or stock possessing more than five (5%) percent of
the total combined voting power of all stock of the
Employer or, in the case of an unincorporated Employer, the
capital or profits interest in the Employer;
(iv) any person who owns directly or indirectly
more than one (1%) percent of the outstanding stock of the
Employer or stock possessing more than one (1%) percent of
the total combined voting power of all stock of the
Employer or, in the case of an unincorporated Employer, the
capital or profits interest in the Employer and having an
Annual Compensation from the Employer of more than
$150,000; or
(v) any beneficiary of a Key Employee. The
determination of who is a Key Employee shall be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
(b) "AGGREGATION GROUP": Each qualified retirement plan of
the Employer in which a Key Employee is a participant and each other
qualified retirement plan of the Employer which enables any plan in
which a Key Employee is a participant to meet the requirements of
Section 401(a)(4) or Section 410 of the Code.
(c) "ANNUAL COMPENSATION": Compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
(d) "TOP-HEAVY PLAN": For any Plan Year beginning after
December 31, 1983, the plan is top-heavy if any of the following
conditions exists:
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<PAGE> 44
(i) If the top-heavy ratio for the plan exceeds
60 percent and the plan is not part of any required
aggregation group or permissive aggregation group of plans.
(ii) If the plan is a part of a required
aggregation group of plans but not part of a permissive
aggregation group and the top-heavy ratio for the group of
plans exceeds 60 percent.
(iii) If the plan is a part of a required
aggregation group and part of a permissive aggregation
group of plans and the top-heavy ratio for the permissive
aggregation group exceeds 60 percent.
(e) "TOP-HEAVY RATIO":
(i) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan)
and the Employer has not maintained any defined benefit plan which
during the 5-year period ending on the Determination Date(s) has or
has had accrued benefits, the top-heavy ratio for this plan alone or
for the required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of the account balances
of all Key Employees as of the Determination Date(s) (including any
part of any account balance distributed in the 5-year period ending
on the Determination Date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the Determination
Date(s)), both computed in accordance with Section 416 of the Code
and the regulations thereunder. Both the numerator and denominator of
the top-heavy ratio are increased to reflect any contribution not
actually made as of the Determination Date, but which is required to
be taken into account on that date under Section 416 of the Code and
the regulations thereunder.
(ii) If the Employer maintains one or more
defined contribution plans (including any simplified employee pension
plan) and the Employer maintains or has maintained one or more
defined benefit plans which during the 5-year period ending on the
Determination Date(s) has or has had any accrued benefits, the
top-heavy ratio for any required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the sum of
account balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (i) above,
and the present value of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as of the
Determination Date(s), and the denominator of which is the sum of the
account balances under the aggregated defined contribution plan or
plans for all Participants, determined in accordance with (i) above,
and the present value of accrued benefits under the defined benefit
plan or plans for all Participants as of the Determination Date(s),
all determined in accordance with Section 416 of the Code and the
regulations thereunder. The accrued benefits under a defined benefit
plan in both the numerator and denominator of the top-heavy ratio are
increased for any distribution of an accrued benefit made in the
five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above, the
value of account balances and the present value of accrued benefits
will be determined as of the most recent
39
<PAGE> 45
valuation date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Section 416
of the Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The account balances and
accrued benefits of a Participant (1) who is not a Key Employee but
was a Key Employee in a prior year, or (2) who has not been credited
with at least one hour of service with any Employer maintaining the
plan at any time during the 5-year period ending on the Determination
Date will be disregarded. The calculation of the top-heavy ratio, and
the extent to which distributions, rollovers, and transfers are taken
into account will be made in accordance with Section 416 of the Code
and the regulations thereunder. Deductible employee contributions
will not be taken into account for purposes of computing the
top-heavy ratio. When aggregating plans, the value of account
balances and accrued benefits will be calculated with reference to
the Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies
for accrual purposes under all defined benefit plans maintained by
the Employer, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted
under the fractional rule of Section 411(b)(1)(C) of the Code.
(f) "Permissive Aggregation Group": The required
aggregation group of plans plus any other plan or plans of the
Employer which, when considered as a group with the required
aggregation group, would continue to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
(g) "REQUIRED AGGREGATION GROUP":
(i) Each qualified plan of the Employer in which
at least one Key Employee participates or participated at
any time during the Determination Period (regardless of
whether the plan has terminated).
(ii) Any other qualified plan of the Employer
which enables a plan described in (i) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(h) "DETERMINATION DATE": For any plan year subsequent to
the first plan year, the last day of the preceding plan year. For the
first plan year of the plan, the last day of that year.
(i) "VALUATION DATE": The date elected by the Employer in
the Adoption Agreement as of which account balances or accrued
benefits are valued for purposes of calculating the top-heavy ratio.
(j) "PRESENT VALUE": Present value shall be based only on
the interest and mortality rates specified in the Adoption Agreement.
(k) "DETERMINATION PERIOD": The Plan Year containing the
Determination Date and the four (4) preceding Plan Year.
40
<PAGE> 46
(l) "NON-KEY EMPLOYEE": An Employee who is not a Key
Employee.
2.6.3. PAIRING REQUIREMENTS. If an Employer adopts two or more
defined contribution plans by executing Adoption Agreements pursuant to this
Plan or another prototype plan for which the Mass Submitter is the same, the
following provisions shall apply:
(a) Only one of the Adoption Agreements may provide for
permitted disparity by integration with Social Security.
(b) For each Plan Year in which the paired plans are
top-heavy the Employer shall provide a minimum contribution equal to
dim (3%) percent of Compensation for each Non-Key Employee (i) under
the paired plan designated by the Employer in the Adoption Agreement
if the plans benefit the same Participants, or in the case of a plan
subject to Code Section 401(k) or 401(m), the same Participants are
eligible to make elective deferrals or employee contributions, or
(ii) under both paired plans if the plans benefit the same
participants. Note: The same eligibility requirements in Section A of
the Adoption Agreement must be selected.
(c) In any Plan Year in which the paired plans are
top-heavy, i.e. the top-heavy ratio exceeds sixty (60%) percent, the
denominators of the defined benefit fraction and defined contribution
fraction in Section 3.2.1(d) shall be computed by multiplying the
dollar limitation by 1.0 instead of by 1.25.
ARTICLE VII
SPECIAL CODA LIMITATIONS
2.7.1. LIMITATION ON DEFERRAL PERCENTAGE FOR HIGHLY COMPENSATED
EMPLOYEES. Notwithstanding any provision herein to the contrary, the actual
deferral percentage for all Highly Compensated Employees for each Plan Year must
not exceed the actual deferral percentage for all other Employees eligible to
participate by more than the greater of:
(a) the actual deferral percentage of such other Employees
multiplied by 1.25; or
(b) the actual deferral percentage of such other Employees
multiplied by 2.0, but in no event more than two (2) percentage
points greater than the actual deferral percentage of such other
Employees.
For purposes hereof, the actual deferral percentages for a Plan Year for all
Highly Compensated Employees and for all other Employees respectively are the
averages of the ratios, calculated separately for each Employee in the
respective group, of the amount of Elective Contributions and Qualified
Non-Elective Contributions paid under the Plan on behalf of each such Employee
for such Plan Year including Excess Elective Deferrals to the Employee's
Compensation for such Plan Year (whether or not the Employee was a Participant
for the entire Plan Year) but excluding Elective Deferrals that are taken into
account in the Contribution Percentage test (provided the ADP test is satisfied
both with and without exclusion of those Elective Deferrals).
41
<PAGE> 47
An Employee who would be a Participant but for the failure to have Elective
Contributions made on his behalf shall be treated as a Participant on whose
behalf no Elective Contributions are made. For purposes of calculating the
actual deferral percentages of Highly Compensated Employees who are 5 percent
owners or among the ten most highly paid Employees, Elective Contributions and
Qualified Non-Elective Contributions on behalf of a member of the Family of such
Highly Compensated Employees shall be taken into account and Compensation of
such Employees shall include the Elective Deferrals and Qualified Non-Elective
Contributions and Compensation for the Plan Year of members of his Family (as
determined in Section 414(q)(6) of the Code). A member of the Family of such
Highly Compensated Employees shall be disregarded as a separate Employee in
determining the actual deferral percentage both for Participants who are Highly
Compensated Employees and for all other Employees.
For purposes of determining the actual deferral percentage test, Elective
Contributions and Qualified Non-Elective Contributions must be made before the
last day of the twelve month period immediately following the Plan Year to which
the contributions relate.
The Employer shall maintain records sufficient to demonstrate satisfaction of
the actual deferral percentage test and the amount of Qualified Non-Elective
Contributions used in such test.
The determination and treatment of the actual deferral percentage amounts of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
2.7.2. MULTIPLE PLAN LIMITATIONS.
(a) The actual deferral percentage for any Participant who is
a Highly Compensated Employee for the Plan Year and who is eligible to
have Elective Contributions (and Qualified Non-Elective Contributions
if treated as Elective Deferrals for purposes of the actual deferral
percentage test) allocated to his or her Accounts under two or more
arrangements described in Section 401(k) of the Code, that are
maintained by the Employer, shall be determined as if such Elective
Deferrals (and, if applicable, such Qualified Non-Elective
Contributions) were made under a single arrangement. If a Highly
Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred
arrangements ending with or within the calendar year shall be treated
as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatory desegregated under
regulations under Section 401(k) of the Code.
(b) In the event that this Plan satisfies the requirements of
Section 401(k), 401(a)(4) or 410(b) of the Code only if aggregated with
one or more other plans, or if one or more other plans satisfy the
requirements of such sections of the Code only if aggregated with this
Plan, then this section shall be applied by determining the actual
deferral percentage of Employees as if all such plans were a single
plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(k) of the Code only if they
have the same Plan Year.
2.7.3. LIMITATION ON MATCHING CONTRIBUTIONS. Notwithstanding any
provision herein to the contrary, the average contribution percentage for all
Highly Compensated Employees for
42
<PAGE> 48
each Plan Year must not exceed the average contribution percentage for all other
Employees eligible to participate by more than the greater of:
(a) the average contribution percentage of such other
Employees multiplied by 1.25; or
(b) the average contribution percentage of such other
Employees multiplied by 2.0, but in no event more than two (2)
percentage points greater than the average contribution percentage of
such other Employees.
For purposes hereof, the average contribution percentages for a Plan Year for
all Highly Compensated Employees and for all other Employees respectively are
the averages of the ratios, calculated separately for each Employee in the
respective group, of the amount of Matching Contributions paid under the Plan on
behalf of each such Employee for such Plan Year, to the Employee's Compensation
for such Plan Year whether or not the Employee was a Participant for the entire
Plan Year. Such contribution percentage amounts shall include forfeitures of
Excess Aggregate Contributions or Matching Contributions allocated to the
Participant's Accounts which shall be taken into account in the Plan Year in
which such forfeiture is allocated. Forfeitures of Matching Contributions shall
be included as contribution percentage amounts only to the extent such
forfeitures are used to reduce or supplement the Matching Contributions, as
specified in the Adoption Agreement. If so elected in the Adoption Agreement,
the Employer may include Qualified Non-Elective Contributions in the
contribution percentage amounts. The Employer may also elect to use Elective
Deferrals in the contribution percentage amounts so long as the ADP test is met
before the Elective Deferrals are used in the ACP test and continues to be met
following the exclusion of those Elective Deferrals that are used to meet the
ACP test. If an Elective Contribution or other contribution by an Employee is
required as a condition of participation in the Plan, any Employee who would be
a Participant if such Employee made such a contribution shall be treated as an
eligible Participant on behalf of whom no such contributions are made.
The Employer shall maintain records sufficient to demonstrate satisfaction of
the average contribution percentage test and the amount of Qualified
Non-Elective Contributions used in such test.
The determination and treatment of the contribution percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
2.7.4. SPECIAL RULES.
(a) MULTIPLE USE: If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP test
maintained by the Employer and the sum of the ADP and ACP of those
Highly Compensated Employees subject to either or both tests exceeds
the Aggregate Limit, then the ACP of those Highly Compensated Employees
who also participate in a CODA shall be reduced (beginning with such
Highly Compensated Employee whose ACP is the highest) so that the limit
is not exceeded. The amount by which each Highly Compensated Employee's
contribution percentage amounts is reduced shall be treated as an
Excess Aggregate Contribution. The
43
<PAGE> 49
ADP and ACP of the Highly Compensated Employees are determined after
any corrections required to meet the ADP and ACP tests. Multiple use
does not occur if either the ADP or ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP of the
Employees who are not Highly Compensated Employees.
(b) The contribution percentage for any Participant who is a
Highly Compensated Employee and who is eligible to have contribution
percentage amounts allocated to his or her Accounts under two or more
plans described in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code that are maintained by the
Employer, shall be determined as if the total of such contribution
percentage amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements that
have different plan years, all cash or deferred arrangements ending
with or within the same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under regulations
under section 401(m) of the Code.
(c) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with this
plan, then this section shall be applied by determining the
contribution percentages of Employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(m) of the Code only
if they have the same Plan Year.
(d) For purposes of determining the contribution percentage of
a Participant who is a five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the contribution percentage
amounts and Compensation of such participant shall include the
contribution percentage amounts and Compensation for the Plan Year of
members of the Family of such Highly Compensated Employees. Family
members, with respect to Highly Compensated Employees, shall be
disregarded as separate employees in determining the contribution
percentage both for Participants who are Highly Compensated Employees
and for all other Employees.
(e) For purposes of determining the contribution percentage
test, Employee Contributions are considered to have been made in the
Plan Year in which contributed to the trust. Matching Contributions and
Qualified Non-Elective Contributions shall be considered made for a
Plan Year if made no later than the end of the twelve month period
beginning of the day after the close of the Plan Year.
2.7.5. DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS.
A Participant may assign to the Plan any Excess Elective Deferrals made during a
taxable year of the Participant by notifying the Plan Administrator on or before
March 15 of each calendar year of the amount of the Excess Elective Deferrals to
be assigned to the Plan. A Participant is deemed to notify the Plan
Administrator of any Excess Elective Deferrals that arise by taking
44
<PAGE> 50
into account only those Elective Deferrals made to this Plan and any other plans
of the Employer.
Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus
any income and minus any loss allocable thereto, shall be distributed no later
than April 15 to any Participant to whose account Excess Elective Deferrals were
assigned for the preceding year and who claims Excess Elective Deferrals for
such taxable year.
Excess Elective Deferrals distributed under this section shall be adjusted for
any income or loss based on a reasonable method of computing the allocable
income or loss. The method selected must be applied consistently to all
Participants and used for all corrective distributions under the Plan for the
Plan Year, and must be the same method that is used by the Plan for allocating
income or loss to Participants' Accounts. Income or loss allocable to the period
between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
2.7.6. DISTRIBUTION OF EXCESS CONTRIBUTIONS. Notwithstanding any other
provision of this Plan, Excess Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last day of each Plan
Year to Participants to whose Accounts such Excess Contributions were allocated
for the preceding Plan Year. If such excess amounts are distributed more than 2
1/2 months after the last day of the Plan Year in which such excess amounts
arose, a ten (10) percent excise tax will be imposed on the Employer maintaining
the Plan with respect to such amounts. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the family member aggregation
rules shall be allocated among the family members in proportion to the Elective
Deferrals (and any amounts treated as Elective Deferrals) of each family member
that is combined to determine the combined ADP.
Excess Contributions distributed under this section shall be adjusted for any
income or loss based on a reasonable method of computing the allocable income or
loss. The method selected must be applied consistently to all Participants and
used for all corrective distributions under the Plan for the Plan Year, and must
be the same method that is used by the Plan for allocating income or loss to
Participants' Accounts. Income or loss allocable to the period between the end
of the taxable year and the date of distribution may be disregarded in
determining income or loss.
Excess Contributions shall be distributed from the Participant's Elective
Contribution Account in proportion to the Participant's Elective Deferrals for
the Plan Year. Excess Contributions attributable to Qualified Non-Elective
Contributions shall be distributed from the Participant's Qualified Non-Elective
Contribution Account only to the extent that such Excess Contributions exceed
the balance in the Participant's Elective Contribution Account.
2.7.7. DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Notwithstanding
any other provision of this Plan, Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be forfeited, if forfeitable,
or if not forfeitable, distributed no later than the last day of each Plan Year
to Participants to whose accounts such Excess Aggregate Contributions were
allocated for the preceding Plan Year. Excess Aggregate Contributions of
Participants who are subject to the family member aggregation rules shall be
allocated among the
45
<PAGE> 51
family members in proportion to the Employee and Matching Contributions (or
amounts treated as Matching Contributions) of each family member that is
combined to determine the combined ACP. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective portions of the
Excess Aggregate Contributions attributable to each of such Employees. If such
Excess Aggregate Contributions are distributed more than 2 1/2 months after the
last day of the Plan Year in which such excess amounts arose, a ten (10) percent
excise tax will be imposed on the Employer maintaining the Plan with respect to
those amounts.
Excess Aggregate Contributions distributed under this section shall be adjusted
for any income or loss based on a reasonable method of computing the allocable
income or loss. The method selected must be applied consistently to all
Participants and used for all corrective distributions under the Plan for the
Plan Year, and must be the same method that is used by the Plan for allocating
income or loss to Participants' Accounts. Income or loss allocable to the period
between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
Forfeitures of Excess Aggregate Contributions may either be reallocated to the
accounts of Employees who are not Highly Compensated Employees or applied to
reduce Employer Contributions, as elected by the Employer in the Adoption
Agreement.
Excess Aggregate Contributions shall be forfeited, if forfeitable or distributed
on a pro-rata basis from the Participant's Matching Account and Voluntary
Account (and, if applicable, the Participant's Qualified Non-Elective
Contribution Account or Elective Contribution Account).
2.7.8. LIMITATION ON DISTRIBUTIONS. Except as otherwise provided in
this Article, Elective Deferrals and Qualified Non-Elective Contributions and
income allocable thereto are not distributable to a Participant or his or her
Beneficiary in accordance with such Participant's or Beneficiary's election
prior to separation from service, death or disability. Such amounts may,
however, be distributed upon:
(a) Termination of the Plan without the establishment of
another defined contribution plan, other than an employee stock
ownership plan (as defined in Section 4975(e) or Section 409 of the
Code) or a simplified employee pension plan as defined in Section
408(k) of the Code.
(b) The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code) used in a trade or business of such
corporation if such corporation continues to maintain this Plan after
the disposition, but only with respect to employees who continue
employment with the corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the meaning of
Section 409(d)(3) of the Code) if such corporation continues to
maintain this Plan, but only with respect to employees who continue
employment with such subsidiary.
(d) The attainment of age 59 1/2.
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<PAGE> 52
(e) The Hardship of a Participant in accordance with Section
2.5.5.
All such distributions are subject to the spousal and Participant consent
requirements, if applicable, contained in Sections 401(a)(11) and 417 of the
Code. In addition, distributions after March 31, 1988 that are triggered by any
of the first three events enumerated above must be made in a lump sum.
2.7.9. LIMITATION ON ELECTIVE DEFERRALS. No Participant shall be
permitted to have Elective Deferrals made under this Plan, or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
PART III
ARTICLE I
ACCOUNTING
3.1.1. ACCOUNTS. All income, profits, recoveries, contributions and any and 0
monies, securities and properties of any kind at any time received or held by
the Trustee shall be held as a commingled Trust Fund, except to the extent such
assets are transferred to a Segregated Fund. For accounting purposes, the Plan
Administrator shall establish and maintain certain Accounts for each
Participant. An Employer Account shall be established and maintained for each
Participant to which shall be added the Participant's share of Employer or
Non-Elective Contributions and forfeitures. A Matching Account shall be
established and maintained for each Participant to which shall be added the
Participant's share of Matching Contributions and forfeitures. A Qualified
Non-Elective Contribution Account shall be established and for each Participant
to which shall be added the Participant's share of Qualified Non-Elective
Contributions. If a Participant has previously made voluntary nondeductible
employee contributions, the Plan Administrator shall establish and maintain a
Voluntary Account for the Participant. If, in accordance with any of the
provisions of the Plan, assets are either deposited initially or transferred to
a Segregated Fund for the benefit of a Participant, the Plan Administrator shall
establish and maintain a Segregated Account for the Participant. If a
Participant elects to exercise investment control over all or a portion of his
Accounts, the Plan Administrator shall establish and maintain a Controlled
Account for the Participant.
3.1.2. ADJUSTMENTS. As of each Valuation Date, each Participant's
Accounts shall be adjusted in the following order and manner.
(a) DISTRIBUTIONS. Any distribution made to or on behalf of a
Participant since the last preceding Valuation Date shall be deducted
from the Participant's Account from which the distribution was made.
(b) INSURANCE PREMIUMS. Payments made since the last preceding
Valuation Date for Life Insurance Policies on the life of a Participant
(including without limitation
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payments of premiums and interest on policy loans) shall be deducted
from the Account of the Participant from which the payment was made.
(c) ADJUSTMENT TO FAIR MARKET VALUE. The value of all monies,
securities and other property in the Trust Fund, excluding Life
Insurance Policies, shall be appraised by the Trustee at the then fair
market value. In determining such value, all income and contributions,
if any, received by the Trustee from the Employer or Participants on
account of such Year calculated under the method of accounting of the
Trust shall be included and there shall be deducted all expenses
determined in accordance with the method of accounting adopted by the
Plan Administrator.
If the total net value of the Trust Fund so determined exceeds (or is less than)
the total amount in the affected Accounts of all Participants, the excess (or
deficiency) shall be added to (or deducted from) the respective Accounts of all
Participants in the ratio that each such Participant's Account bears to the
total amount in all such Accounts.
(d) ADJUSTMENT OF SEGREGATED AND CONTROLLED ACCOUNTS. The
value of all monies, securities and other property in each
Participant's Segregated Account or Controlled Account, if any, but
exclusive of Life Insurance Policies, shall be appraised by the Trustee
at the then fair market value. In determining such value, all income
calculated under the method of accounting of the Trust shall be
included and all expenses shall be deducted.
If the total net value of a Participant's Segregated Account or Controlled
Account, as the case may be, so determined exceeds (or is less than) the
previous balance in such Account, the excess (or deficiency) shall be added to
(or deducted from) the Participant's respective Account.
(e) INSURANCE DIVIDENDS. Dividends or credits received since
the last preceding Valuation Date on any Life Insurance Policy on the
life of a Participant shall be added to the Account of the Participant
from which the premium for such Life Insurance Policy have been paid.
(f) CONTRIBUTIONS AND FORFEITURES. Each Participant's Account
shall be increased by that portion of the contribution and forfeitures
which is allocated to him.
(g) TRANSFERS TO SEGREGATED FUNDS. To the extent that funds in
the Trust Fund attributable to a Participant's Accounts were
transferred since the last preceding Valuation Date or are to be
transferred to a Segregated Fund pursuant to any of the provisions of
the Plan, the Account from which the funds were transferred shall be
decreased and the Account to which the funds were transferred shall be
increased.
(h) TRANSFERS FROM SEGREGATED FUNDS. To the extent that funds
are transferred from a Segregated Fund of a Participant to the Trust
Fund pursuant to any of the provisions of the Plan, the Account from
which the funds were transferred shall be decreased and the Account to
which the funds were transferred shall be increased.
(i) TIME OF ADJUSTMENTS. Every adjustment to be made pursuant
to this Section shall be considered as having been made as of the
applicable Valuation Date
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regardless of the actual dates of entries, receipt by the Trustee of
contributions by the Participant or the Employer for such Year, or the
transfers of funds to or from Segregated Funds. The Trustee's
determination as to valuation of trust assets and charges or credits to
the individual Accounts of the respective Participants shall be
conclusive and binding on all persons. If funds are transferred from
the Trust Fund to a Segregated Fund as of any date other than a
Valuation Date pursuant to the terms of the Plan, the adjustment to be
made pursuant to this Section shall be made as of the date as of which
such transfer is made as if such date is a Valuation Date.
If any Participant receives a distribution pursuant to the terms of the Plan as
of any date other than a Valuation Date, then the adjustments to be made
pursuant to this Section shall be made in the manner specified in the Adoption
Agreement.
ARTICLE II
LIMITATIONS
3.2.1. LIMITATIONS ON ANNUAL ADDITIONS. If the Participant does not
participate in, and has never participated in, another qualified plan maintained
by the Employer, or a welfare benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer, or an individual medical account, as defined
in Section 415(l)(2) of the Code, maintained by the Employer, which provides an
annual addition, then subject to the adjustments hereinafter set forth, the
amount of annual additions which may be credited to a Participant's Accounts
during any Limitation Year shall not exceed the maximum permissible amount,
which shall equal the lesser of: (a) thirty thousand dollars ($30,000.00) or, if
greater, one-fourth of the dollar limitation under Section 415(b)(1)(A) of the
Code as in effect for the Limitation Year, or (b) twenty-five percent (25%) of
the Participant's Compensation for the Plan Year. The compensation limitation
referred to in (b) shall not apply to any contribution for medical benefits
(within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which
is otherwise treated as an annual addition under Sections 415(1)(1) or
419A(d)(2) of the Code.
If the Employer contribution that would otherwise be contributed or allocated to
the Participant's Account would cause the annual additions for the Limitation
Year to exceed the maximum permissible amount, the amount contributed or
allocated shall be reduced so that the annual additions for the Limitation Year
shall equal the maximum permissible amount.
(a) ANNUAL ADDITIONS. The term "annual additions" shall mean
the sum of the following amounts credited to a Participant's Accounts
for the Limitation Year:
(i) Employer contributions;
(ii) Employee contributions;
(iii) Forfeitures;
(iv) Excess Elective Deferrals, Excess Contributions
and Excess Aggregate Contributions; and
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(v) Payments allocated after March 31, 1984, to an
individual medical account, as defined in section 415(l)(2) of
the Code, which is part of a pension or annuity plan
maintained by the Employer and amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable
to post-retirement medical benefits, allocated to the separate
account of a key employee, as defined in section 419A(d)(3) of
the Code, under a welfare benefit fund as defined in section
419(e) of the Code, maintained by the Employer.
Any excess amounts applied under subsections (b) and (c) below
to reduce Employer contributions are considered annual
additions for such Limitation Year.
(b) EXCESSIVE ANNUAL ADDITIONS. Prior to determining a
Participant's actual Compensation for a Limitation Year, the Employer
may determine the maximum permissible Annual Addition for the
Participant on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year, uniformly
determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the
maximum permissible amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the
Limitation Year. Any Excessive Annual Addition attributable to
nondeductible voluntary employee contributions made by a Participant to
the extent they reduce the excess amount shall be returned to the
Participant before any other adjustments are made. Any Excessive Annual
Addition attributable to a reasonable error in determining the amount
of Elective Deferrals that may be made on behalf of a Participant under
the limits of Section 415 of the Code shall next be returned to the
Participant.
If an excess amount still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the excess amount in the Participant's Account
shall be used to reduce Employer contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and each
succeeding Limitation Year, if necessary. If an excess amount still exists, and
the Participant is not covered by the Plan at the end of a Limitation Year, the
excess amount shall be held unallocated in a suspense account. The suspense
account shall be applied to reduce future Employer contributions for all
remaining Participants in the next Limitation Year, and each succeeding
Limitation Year, if necessary.
If a suspense account is in existence at any time during a particular Limitation
Year, all amounts in the suspense account must be allocated and reallocated to
Participants' Accounts before any Employer or any Employee contributions may be
made to the Plan for that Limitation Year. Excess amounts may not be distributed
to Participants or former Participants. If a suspense account is in existence at
any time during a Limitation Year, it shall not participate in the allocation of
the Trust's investment gains and losses.
(c) PARTICIPATION IN CERTAIN OTHER PLANS. If in addition to
this Plan, the Participant is covered under another qualified regional
prototype defined contribution plan maintained by the Employer, a
welfare benefit find, as defined in Section 419(e) of the code
maintained by the Employer, or an individual medical account, as
defined in Section 415(l)(2) of the Code, maintained by the Employer,
which provides an Annual
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Addition during any Limitation Year, the annual additions which may be
credited to a Participant's account under this Plan for any such
Limitation Year shall not exceed the maximum permissible amount reduced
by the Annual Additions credited to a Participant's Account under the
other plans and welfare benefit funds for the same Limitation Year. If
the Annual Additions with respect to the Participant under other
defined contribution plans and welfare benefit funds maintained by the
Employer are less than the maximum permissible amount and the Employer
contribution that would otherwise be contributed or allocated to the
Participant's Account under this Plan would cause the Annual Additions
for the Limitation Year to exceed this limitation, the amount
contributed or allocated shall be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year shall equal the
maximum permissible amount. If the Annual Additions with respect to the
Participant under such other defined contribution plans and welfare
benefit funds in the aggregate are equal to or greater than the maximum
permissible amount, no amount will be contributed or allocated to the
Participant's Account under this Plan for the Limitation Year.
Prior to determining the Participant's actual Compensation for the Limitation
Year, the Employer may determine the maximum permissible amount for a
Participant in the manner described in subsection (b) above. As soon as is
administratively feasible after the end of the Limitation Year, the maximum
permissible amount for the Limitation Year shall be determined on the basis of
the Participant's actual Compensation for the Limitation Year.
If a Participant's Annual Additions under this Plan and such other plans would
result in an excess amount for a Limitation Year, the excess amount shall be
deemed to consist of the Annual Additions last allocated, except that Annual
Additions attributable to a welfare benefit fund or individual medical account
will be deemed to have been allocated first regardless of the actual allocation
date.
If the excess amount was allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another plan, the excess
amount attributed to this Plan will be the product of:
(i) the total excess amount allocated as of such
date, times
(ii) the ratio of (I) the Annual Additions allocated
to the Participant for the Limitation Year as of such date
under this Plan to (II) the total Annual Additions allocated
to the Participant for the Limitation Year as of such date
under this and all the other qualified regional prototype
defined contribution plans. Any excess amount attributed to
this Plan will be disposed in the manner described in
subsection (b), above
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a
regional prototype plan, Annual Additions which may be
credited to the Participant's Account under this Plan for any
Limitation Year shall be limited as provided above as though
the other plan were a regional prototype plan unless the
Employer specifies other limitations in the Adoption
Agreement.
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For purposes hereof, the excess amount is the excess of the
Participant's annual additions for the Limitation Year over
the maximum permissible amount and a regional prototype plan
is a plan the form of which is the subject of a favorable
opinion letter from the Internal Revenue Service.
If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's defined benefit plan
fraction and defined contribution plan fraction will not
exceed 1.0 in any Limitation Year. The Annual Additions which
may be credited to the Participant's account under this Plan
for any Limitation Year shall be limited in the manner
specified in the Adoption Agreement.
(d) COMBINED PLAN LIMITATION. In the event that a Participant
in this Plan participates in a defined benefit plan (as defined in the
applicable sections of the Code) maintained by the Employer, the sum of
the "defined benefit plan fraction" plus the "defined contribution plan
fraction" shall at no time exceed 1.0. The "defined benefit plan
fraction" for any year is a fraction (i) the numerator of which is the
projected annual benefit of the Participant under all the defined
benefit plans (whether or not terminated) maintained by the Employer
(determined as of the close of the year), and (ii) the denominator of
which is the lesser of (A) the product of 1.25 multiplied by the dollar
limitation determined for the Limitation Year under Sections 415(b) and
(d) of the Code, or (B) the product of 1.4 multiplied by one hundred
(100%) percent of the Participant's average compensation for the three
(3) consecutive Years of Service with the Employer that produces the
highest average, including any adjustments under Section 415(b) of the
Code. Notwithstanding the above, if the Participant was a Participant
as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained by
the Employer which were in existence on May 6, 1986, the denominator of
this fraction shall not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as
of the close of the last Limitation Year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the Plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Section 415 for all Limitation Years beginning before
January 1, 1987. The "defined contribution fraction" for any year is a
fraction (i) the numerator of which is the sum of the annual additions
to the Participant's accounts under all defined contribution plans
(whether or not terminated) maintained by the Employer for the current
and all prior Limitation Years, including the annual additions
attributable to the Participant's nondeductible employee contributions
to all defined benefit plans, whether or not terminated, maintained by
the Employer, and the annual additions attributable to all welfare
benefit funds and individual medical accounts (as defined in Sections
419(e) and 415(1)(2) of the Code) maintained by the Employer, and (ii)
the denominator of which is the sum of the lesser of the following
amounts determined for the current year and for all prior limitation
years of service with the Employer, regardless of whether a defined
contribution plan was maintained by the Employer: (A) the product of
1.25 multiplied by the dollar limitation determined under Sections
415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the
Code, or (B) thirty-five (35%) percent of the Participant's
compensation from the Employer for such plan year. If the Employee was
a
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Participant as of the end of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of
this fraction and the defined benefit fraction would otherwise exceed
1.0 under the terms of this Plan. Under the adjustment, an amount equal
to the product of (1) the excess of the sum of the fractions over 1.0
times (2) the denominator of this fraction, shall be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987.
The annual addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat all employee contributions as
annual additions.
The projected annual benefits under a defined benefit plan is the
annual retirement benefit (adjusted to an actuarially equivalent
straight life annuity if such benefit is expressed in a form other than
a straight life annuity) or qualified joint and survivor annuity) to
which the Participant would be entitled under the terms of the Plan
assuming the Participant continues employment until normal retirement
age under the plan (or current age, if later), and the Participant's
compensation for the current Limitation Year and all other relevant
factors used to determine benefits under the Plan remain constant for
all future Limitation Years.
(e) SPECIAL TRANSITION RULE FOR DEFINED CONTRIBUTION FRACTION.
At the election of the Plan Administrator, in applying the provisions
of subsection (d) above with respect to the defined contribution plan
fraction for any year ending after December 31, 1982, the amount taken
into account for the denominator for each Participant for all years
ending before January 1, 1983 shall be an amount equal to the product
of the amount of the denominator determined under subsection (d) above
for the year ending in 1982, multiplied by the "transition fraction":
The "transition fraction" is a fraction (i) the numerator of which is
the lesser of (A) $51,875 or (B) 1.4 multiplied by twenty-five (25%)
percent of the Participant's compensation for the year ending in 1981,
and (ii) the denominator of which is the lesser of (A) $41,500 or (B)
twenty-five (25%) percent of the Participant's compensation for the
year ending in 1981.
(f) SPECIAL TRANSITION RULE FOR EXCESS BENEFITS. Provided that
the Plan satisfied the requirements of Section 415 of the Code for the
last Plan Year beginning before January 1, 1983, an amount shall be
subtracted from the numerator of the defined contribution plan fraction
(not exceeding such numerator) so that the sum of the defined benefit
plan fraction and the defined contribution fraction computed in
accordance with Section 415(e)(1) of the Code (as amended by the Tax
Equity and Fiscal Responsibility Act of 1982) does not exceed 1.0 for
such year, in accordance with regulations issued by the Secretary of
the Treasury pursuant to the applicable provisions of the Code.
(g) EMPLOYER. For purposes of this Section, employer shall
mean the Employer that adopts this Plan and all members of a group of
employers which
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constitutes a controlled group of corporations or trades or businesses
under common control (as defined in Sections 414(b) and (c) of the
Code, as modified by Section 415(h) of the Code), or an affiliated
service group (as defined in Section 414(m) of the Code) of which the
adopting employer is part and any other entity required to be
aggregated with the Employer under Section 414(o) of the Code and the
regulations issued thereunder.
(h) COMPENSATION. For purposes of this Section as elected in
the Adoption Agreement by the Employer, Compensation shall mean all of
a Participant's:
(i) WAGES, TIPS AND OTHER COMPENSATION BOX ON FORM
W-2. Wages as defined in Section 3401(a) and all other
payments of compensation to an employee by the employer (in
the course of the employer's trade or business) for which the
employer is required to furnish the employee a written
statement under Sections 6041(d) and 6051(a)(3) of the Code.
Compensation must be determined without regard to any rules,
under Section 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or the
services rendered (such as the exception for agricultural
labor in Section 3401(a)(2) of the Code).
(ii) SECTION 3401(a) WAGES. Wages as defined in
section 3401(a) of the Code for the purposes of income tax
withholding at the source but determined without regard to any
rules that limit the remuneration included in wages based on
the nature or location of the employment or the services
performed (such as the exception for agricultural labor in
section 3401(a)(2) of the Code).
(iii) SECTION 415 SAFE-HARBOR COMPENSATION. Wages,
salaries and fees for professional services and other amounts
received without regard to whether or not an amount is paid in
cash for personal services actually rendered in the course of
employment for the employer maintaining the Plan to the extent
that the amounts are includible in gross income (including but
not limited to commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or other expense allowances under a
nonaccountable plan (as described in section 1.62-2(c) of the
Regulations), but excluding:
(I) Employer contributions to a plan of
deferred compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee or any
distributions from a plan of deferred compensation;
(II) Amounts realized from the exercise of a
non-qualified stock option or when restricted stock
or property held by the Employee is no longer subject
to a substantial risk of forfeiture or becomes freely
transferable.
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(III) Amounts realized from the sale,
exchange or other disposition of stock acquired under
an incentive stock option; and
(IV) Other amounts which received special
tax benefits or contributions made by the Employer
(whether or not under a salary reduction agreement)
towards the purchase of an annuity contract described
in Section 403(b) of the Code (whether or not the
contributions are actually excludable from the gross
income of the Employee).
For any self-employed individual, Compensation shall
mean earned income. For limitation years beginning
after December 31, 1991, for purposes of applying the
limitations of this Article, Compensation for a
Limitation Year is the Compensation actually paid or
made available during such Limitation Year.
Notwithstanding the preceding sentence, Compensation for a
Participant who is permanently and totally disabled (as
defined in section 22(e)(3) of the Code) is the compensation
such Participant would have received for the Limitation Year
if the Participant had been paid at the rate of compensation
paid immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
Participant may be taken into account only if the Participant
is not a Highly Compensated Employee and contributions made on
behalf of such Participant are nonforfeitable when made.
(i) SHORT LIMITATION YEAR. If die Limitation Year is amended
to a different twelve (12) consecutive month period, the new Limitation
Year must begin within the Limitation Year in which the amendment is
made. If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different twelve (12) consecutive
month period, the maximum annual addition shall not exceed the defined
contribution dollar limitation determined in accordance with Section
415(c)(1)(A) of the Code then in effect multiplied by a fraction, the
numerator of which is the number of months in the short Limitation Year
and the denominator of which is twelve (12).
3.2.2. CONTROLLED BUSINESSES. If this plan provides contributions or
benefits for one or more owner-employees who control both the business for which
this plan is established and one or more other trades or businesses, this plan
and the plan established for other trades or businesses must, when looked at as
a single plan, satisfy sections 401(a) and (d) for the employees of this and all
other trades or businesses.
If the plan provides contributions or benefits for one or more owner-employees
who control one or more other trades or businesses, the employees of the other
trades or businesses must be included in a plan which satisfies sections 401(a)
and (d) and which provides contributions and benefits not less favorable than
provided for owner-employees under this plan.
If an individual is covered as an owner-employee under the plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the
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contributions or benefits of the employees under the plan of the trades or
businesses which are controlled must be as favorable as those provided for him
under the most favorable plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an owner-employee, or two or more
owner-employees, will be considered to control a trade or business if the
owner-employee, or two or more owner-employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an owner-employee, or two or
more owner-employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such owner-employee, or such two or more owner-employees, are
considered to control within the meaning of the preceding sentence.
ARTICLE III
FIDUCIARIES
3.3.1. STANDARD OF CONDUCT. The duties and responsibilities of the Plan
Administrator and the Trustee with. respect to the Plan shall be discharged (a)
in a non-discriminatory manner; (b) for the exclusive benefit of Participants
and their Beneficiaries; (c) by defraying the reasonable expenses of
administering the Plan; (d) with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; (e) by diversifying the investments of the
Plan so as to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so; and (f) in accordance with the documents and
instruments governing the Plan insofar as such documents and instruments are
consistent with the provisions of the Act.
3.3.2. INDIVIDUAL FIDUCIARIES. At any time that a group of individuals
is acting as Plan Administrator or Trustee, the number of such persons who shall
act in such capacity from time to time shall be determined by the Employer. Such
persons shall be appointed by the Employer and may or may not be Participants or
Employees of the Employer. Any action taken by a group of individuals acting as
either Plan Administrator or Trustee shall be taken at the direction of a
majority of such persons, or, if the number of such persons is two (2), by
unanimous consent.
3.3.3. DISQUALIFICATION FROM SERVICE. No person shall be permitted to
serve as a Fiduciary, custodian, counsel, agent or employee of the Plan or as a
consultant to the Plan who has been convicted of any of the criminal offenses
specified in the Act.
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3.3.4. BONDING. Except as otherwise permitted by law, each Fiduciary or
person who handles funds or other property or assets of the Plan shall be bonded
in accordance with the requirements of the Act.
3.3.5. PRIOR ACTS. No Fiduciary shall be liable for any acts occurring
prior to the period of time during which the Fiduciary was actually serving in
such capacity with respect to the Plan.
3.3.6. INSURANCE AND INDEMNITY. The Employer may purchase or cause the
Trustee to purchase and keep current as an authorized expense liability
insurance for the Plan, its Fiduciaries, and any other person to whom any
financial responsibility with respect to the Plan and Trust is allocated or
delegated, from and against any and all liabilities, costs and expenses incurred
by such persons as a result of any act or omission to act in connection with the
performance of the duties, responsibilities and obligations under the Plan and
under the Act; provided that any such insurance policy purchased with Plan
assets permits subrogation by the Insurer against the Fiduciary in the case of
breach by such Fiduciary. Unless otherwise determined and communicated to
affected parties by the Employer, the Employer shall indemnify and hold harmless
each such person, other than a corporate trustee, for and from any such
liabilities, costs and expenses which are not covered by any such insurance,
except to the extent that any such liabilities, costs or expenses are judicially
determined to be due to the gross negligence or willful misconduct of such
person. No Plan assets may be used for any such indemnification.
3.3.7. EXPENSES. Expenses incurred by the Plan Administrator or the
Trustee in the administration of the Plan and the Trust, including fees for
legal services rendered, such compensation to the Trustee as may be agreed upon
in writing from time to time between the Employer and the Trustee, and all other
proper charges and expenses of the Plan Administrator or the Trustee and of
their agents and counsel shall be paid by the Employer, or at its election at
any time or from time to time, may be charged against the assets of the Trust,
but until so paid shall constitute a charge upon the assets of the Trust. The
Trustee shall have the authority to charge the Trust Fund for its compensation
and reasonable expenses unless paid or contested by written notice by the
Employer within sixty (60) days after mailing of the written billing by the
Trustee. All taxes of any and all kinds whatsoever which may be levied or
assessed under existing or future laws upon the assets of the Trust or the
income thereof shall be paid from such assets. Notwithstanding the foregoing, no
compensation shall be paid to any Employee for services rendered under the Plan
and Trust as a Trustee.
3.3.8. AGENTS, ACCOUNTANTS AND LEGAL COUNSEL. The Plan Administrator
shall have authority to employ suitable agents, custodians, investment counsel,
accountants and legal counsel who may, but need not be, legal counsel for the
Employer. The Plan Administrator and the Trustee shall be fully protected in
acting upon the advice of such persons The Trustee shall at no time be obliged
to institute any legal action or to become a party to any legal action unless
the Trustee has been indemnified to the Trustee's satisfaction for any fees,
costs and expenses to be incurred in connection therewith.
3.3.9. INVESTMENT MANAGER. The Employer may employ as an investment
manager or managers to manage all or any part of the Trust Fund any (i)
investment advisor registered under the Investment Advisors Act of 1940; (ii)
bank as defined in said Act; or (iii) insurance company
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qualified to perform investment management services in more than one state. Any
investment manager shall have all powers of the Trustee in the management of
such part of the Trust Fund, including the power to acquire or dispose of
assets. In the event an investment manager is so appointed, the Trustee shall
not be liable for the acts or omissions of such investment manager or be under
any obligation to invest or otherwise manage that part of the Trust Fund which
is subject to the management of the investment manager. The Employer shall
notify the Trustee in writing of any appointment of an investment manager, and
shall provide the Trustee with the investment manager's written acknowledgment
that it is a fiduciary with respect to the Plan.
3.3.10. FINALITY OF DECISIONS OR ACTS. Except for the right of a
Participant or Beneficiary to appeal the denial of a claim, any decision or
action of the Plan Administrator or the Trustee made or done in good faith upon
any matter within the scope of authority and discretion of the Plan
Administrator or the Trustee shall be final and binding upon all persons. In the
event of judicial review of actions taken by any Fiduciary within the scope of
his duties in accordance with the terms of the Plan and Trust, such actions
shall be upheld unless determined to have been arbitrary and capricious.
3.3.11. CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS. The term "Trustee" as
used herein will also include a person holding the assets of a custodial
account, an annuity contract or other contract which is treated as a qualified
trust pursuant to Section 401(f) of the Code and references to the Trust Fund
shall be construed to apply to such custodial account, annuity contract or other
contract.
ARTICLE IV
PLAN ADMINISTRATOR
3.4.1. ADMINISTRATION OF PLAN. The Plan Administrator shall be
designated by the Employer from time to time. The primary responsibility of the
Plan Administrator is to administer the Plan for the exclusive benefit of the
Participants and their Beneficiaries, subject to the specific terms of the Plan.
The Plan Administrator shall administer the Plan and shall construe and
determine all questions of interpretation or policy in a manner consistent with
the Plan and the Adoption Agreement. The Plan Administrator may correct any
defect, supply any omission, or reconcile any inconsistency in such manner and
to such extent as he shall deem necessary or advisable to carry out the purpose
of the Plan; provided, however, that any interpretation or construction shall be
done in a nondiscriminatory manner and shall be consistent with the intent that
the Plan shall continue to be a qualified Plan pursuant to the Code, and shall
comply with the terms of the Act. The Plan Administrator shall have all powers
necessary or appropriate to accomplish his duties under the Plan.
(a) The Plan Administrator shall be charged with the duties of
the general administration of the Plan, including but not limited to
the following:
(1) To determine all questions relating to the
eligibility of an Employee to participate in the Plan or to
remain a Participant hereunder.
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(2) To compute, certify and direct the Trustee with
respect to the amount and kind of benefits to which any
Participant shall be entitled hereunder.
(3) To authorize and direct the Trustee with respect
to all disbursements from the Trust Fund.
(4) To maintain all the necessary records for the
administration of the Plan.
(5) To interpret the provisions of the Plan and to
make and publish rules and regulations for the Plan as the
Plan Administrator may deem reasonably necessary for the
proper and efficient administration of the Plan and consistent
with its terms.
(6) To select the Insurer to provide any Life
Insurance Policy to be purchased for any Participant
hereunder.
(7) To advise the Fiduciary with investment authority
regarding the short and long-term liquidity needs of the Plan
in order that the Fiduciary might direct its investment
accordingly.
(8) To advise, counsel and assist any Participant
regarding any rights, benefits or elections available under
the Plan.
(9) To instruct the Trustee as to the management,
investment and reinvestment of the Trust Fund unless the
investment authority has been delegated to the Trustee or an
Investment Manager.
(b) The Plan Administrator shall also be responsible for
preparing and filing such annual disclosure reports and tax forms as
may be required from time to time by the Secretary of Labor, the
Secretary of the Treasury or other governmental authorities.
(c) Whenever it is determined by the Plan Administrator to be
in the best interest of the Plan and its Participants or Beneficiaries,
the Plan Administrator may request such variances, deferrals,
extensions, or exemptions or make such elections for the Plan as may be
available under the law.
(d) The Plan Administrator shall be responsible for procuring
bonding for all persons dealing with the Plan or its assets as may be
required by law.
(e) In the event this Plan is required to file reports or pay
premium to the Pension Benefit Guaranty Corporation, the Plan
Administrator shall have the duty to prepare and make such filings, to
pay any premiums required, whether for basic or contingent liability
coverage, and shall be charged with the responsibility of notifying all
necessary parties of such events and under such circumstances as may be
required by law.
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3.4.2. DISCLOSURE REQUIREMENTS. Every Participant covered under the
Plan and every Beneficiary receiving benefits under the Plan shall receive from
the Plan Administrator a summary plan description, and such other information as
may be required by law or by the terms of the Plan.
3.4.3. INFORMATION GENERALLY AVAILABLE. The Plan Administrator shall
make copies of this Plan and Trust, the Adoption Agreement, the summary plan
description, latest annual report, Life Insurance Policies, or other instruments
under which the Plan was established or is operated available for examination by
any Participant or Beneficiary in the principal office of the Plan Administrator
and such other locations as may be necessary to make such information reasonably
accessible to all interested parties. Subject to a reasonable charge to defray
the cost of furnishing such copies, the Plan Administrator shall, upon written
request of any Participant or Beneficiary, furnish a copy of any of the above
documents to the respective party.
3.4.4. STATEMENT OF ACCRUED BENEFIT. Upon written request to the Plan
Administrator once during any twelve (12) month period, a Participant or
Beneficiary shall be furnished with a written statement, based on the latest
available information, of his then vested accrued benefit and the earliest date
upon which the same will become fully vested and nonforfeitable. The statement
shall also include a notice to the Participant of any benefits which are
forfeitable if the Participant dies before a certain date.
3.4.5. EXPLANATION OF ROLLOVER TREATMENT. The Plan Administrator shall,
when making a distribution eligible for rollover treatment, provide a written
explanation to the recipient of the provisions under which such distribution
will not be subject to tax if transferred to an eligible retirement plan within
sixty (60) days after the date on which the recipient received the distribution
and, if applicable, the provisions of law pertaining to the tax treatment of
lump sum distributions.
ARTICLE V
TRUSTEE
3.5.1. ACCEPTANCE OF TRUST. The Trustee, by joining in the execution of
the Adoption Agreement to the Plan, agrees to act in accordance with the express
terms and conditions hereof.
3.5.2. TRUSTEE CAPACITY - CO-TRUSTEES. The Trustee may be a bank, trust
company or other corporation possessing trust powers under applicable state or
federal law or one or more individuals or any combination thereof. When there
are two or more Trustees, they may allocate specific responsibilities,
obligations or duties among themselves by their written agreement. An executed
copy of such written agreement shall be delivered to and retained by the Plan
Administrator.
3.5.3. RESIGNATION, REMOVAL, AND SUCCESSORS. Any Trustee may resign at
any time by delivering to the Employer a written notice of resignation to take
effect at a date specified therein, which shall not be less than thirty (30)
days after the delivery thereof, the Employer may waive such notice. The Trustee
may be removed by the Employer with or without cause, by tendering to the
Trustee a written notice of removal to take effect at a date specified therein.
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Upon such removal or resignation of a Trustee, the Employer shall either appoint
a successor Trustee who shall have the same powers and duties as those conferred
upon the resigning or discharged Trustee, or, if a group of individuals is
acting as Trustee, determine that a successor shall not be appointed and the
number of Trustees shall be reduced by one (1).
3.5.4. CONSULTATIONS. The Trustee shall be entitled to advice of
counsel, which may be counsel for the Plan or the Employer, in any case in
which. the Trustee shall deem such advice necessary. The Trustee shall not be
liable for any action taken or omitted in good faith reliance upon the advice of
such counsel. With the exception of those powers and duties specifically
allocated to the Trustee by the express terms of the Plan, it shall not be the
responsibility of the Trustee to interpret the terms of the Plan and the Trustee
may request, and is entitled to receive, guidance and written direction from the
Plan Administrator on any point requiring construction or interpretation of the
Plan documents.
3.5.5. RIGHTS, POWERS AND DUTIES. The rights, powers and duties of the
Trustee shall be as follows:
(a) The Trustee shall be responsible for the safekeeping of
the assets of the Trust Fund in accordance with the provisions of the
Plan and any amendments hereto. The duties of the Trustee under the
Plan shall be determined solely by the express provisions hereof and no
other further duties or responsibilities shall be implied. Subject to
the terms of this Plan, the Trustee shall be fully protected and shall
incur no liability in acting in reliance upon the written instructions
or directions of the Employer, the Plan Administrator, a duly
designated investment manager, or any other named Fiduciary.
(b) The Trustee shall have all powers necessary or convenient
for the orderly and efficient performance of its duties hereunder,
including but not limited to those specified in this Section. The
Trustee shall have the power generally to do all acts, whether or not
expressly authorized, which the Trustee in the exercise of its
fiduciary responsibility may deem necessary or desirable for the
protection of the Trust Fund and the assets thereof.
(c) The Trustee shall have the power to collect and receive
any and all monies and other property due hereunder and to give full
discharge and release therefore; to settle, compromise or submit to
arbitration any claims debts or damages due to or owing to or from the
Trust Fund; to commence or defend suits or legal proceedings wherever,
in the Trustee's judgment, any interest of the Trust Fund requires it;
and to represent the Trust Fund in all suits or legal proceedings in
any court of law or equity or before any other body or tribunal.
(d) The Trustee shall cause any Life Insurance Policies or
assets of the Trust Fund to be registered in its name as Trustee and
shall be authorized to exercise any and all ownership rights regarding
these assets, subject to the terms of the Plan.
(e) The Trustee may temporarily hold cash balances and shall
be entitled to deposit any funds received in a bank account in the name
of the Trust Fund in any bank selected by the Trustee, including the
banking department of a corporate Trustee, if any,
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pending disposition of such funds in accordance with the Plan. Any such
deposit may be made with or without interest.
(f) The Trustee shall pay the premiums and other charges due
and payable at any time on any Life Insurance Policies as it may be
directed by the Plan Administrator, provided funds for such payments
are then available in the Trust. The Trustee shall be responsible only
for such funds and Life Insurance Policies as shall actually be
received by it as Trustee hereunder, and shall have no obligation to
make payments other than from such funds and cash values of Life
Insurance Policies.
(g) If the whole or any part of the Trust Fund shall become
liable for the payment of any estate, inheritance, income or other tax
which the Trustee shall be required to pay, the Trustee shall have full
power and authority to pay such tax out of any monies or other property
in its hands for the account of the person whose interest hereunder is
so liable. Prior to making any payment, the Trustee may require such
releases or other documents from any lawful taxing authority as it
shall deem necessary. The Trustee shall not be liable for any
nonpayment of tax when it distributes an interest hereunder on
instructions from the Plan Administrator.
(h) The Trustee shall keep a full, accurate and detailed
record of all transactions of the Trust which the Employer and the Plan
Administrator shall have the right to examine at any time during the
Trustee's regular business hours. As of the close of each Plan Year,
the Trustee shall furnish the Plan Administrator with a statement of
account setting forth all receipts, disbursements and other
transactions effected by the Trustee during the year. The Plan
Administrator shall promptly notify the Trustee in writing of his
approval or disapproval of the account. The Plan Administrator's
failure to disapprove the account within sixty (60) days after receipt
shall be considered an approval. Except as otherwise required by law,
the approval by the Plan Administrator shall be binding as to all
matters embraced in any statement to the same extent as if the account
of the Trustee had been settled by judgment or decree of a court of
competent jurisdiction under which the Trustee, Employer and all
persons having or claiming any interest in the Trust Fund were parties;
provided, however, that the Trustee may have its account judicially
settled if it so desires.
(i) The Trustee is hereby authorized to execute all necessary
receipts and releases to any parties concerned.
(j) If, at any time, as the result of the death of the
Participant there shall be a dispute as to the person to whom payment
or delivery of monies or property should be made by the Trustee, or
regarding any action to be taken by the Trustee, the Trustee may
postpone such payment, delivery or action, retaining the funds or
property involved, until such dispute shall have been resolved in a
court of competent jurisdiction or the Trustee shall have been
indemnified to its satisfaction or until it has received written
direction from the Plan Administrator.
(k) Anything in this instrument to the contrary
notwithstanding, the Trustee shall have no duty or responsibility with
respect to the determination of matters
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pertaining to the eligibility of any Employee to become or remain a
Participant hereunder, the amount of benefit to which any Participant
or Beneficiary shall be entitled hereunder, or the size and type of any
Life Insurance Policy to be purchased from any Insurer for any
Participant hereunder; all such responsibilities being vested in the
Plan Administrator.
3.5.6. TRUSTEE INDEMNIFICATION. The Employer shall indemnify and hold
harmless the Trustee for and from the assertion or occurrence of any liability
to a Participant or Beneficiary for any action taken or omitted by the Trustee
pursuant to any written direction to the Trustee from the Employer or the Plan
Administrator. Such indemnification obligation of the Employer shall not be
applicable to the extent that any such liability is covered by insurance.
3.5.7. CHANGES IN TRUSTEE AUTHORITY. If a successor Trustee is
appointed, neither an Insurer nor any other person who has previously had
dealings with the Trustee shall be chargeable with knowledge of such appointment
or such change until furnished with notice thereof. Until such notice, the
Insurer and any other such party shall be fully protected in relying on any
action taken or signature presented which would have been proper in accordance
with that information previously received.
ARTICLE VI
TRUST ASSETS
3.6.1. TRUSTEE EXCLUSIVE OWNER. All assets held by the Trustee, whether
in the Trust Fund or Segregated Funds, shall be owned exclusively by the Trustee
and no Participant or Beneficiary shall have any individual ownership thereof.
Participants and their Beneficiaries shall share in the assets of the Trust, its
net earnings, profits and losses, only as provided in this Plan.
3.6.2. INVESTMENTS. The Trustee shall invest and reinvest the Trust
Fund without distinction between income or principal in one or more of the
following ways as the Trustee shall from time to time determine:
(a) The Trustee may invest the Trust Fund or any portion
thereof in obligations issued or guaranteed by the United States of
America or of any instrumentalities thereof, or in other bonds, notes,
debentures, mortgages, preferred or common stocks, options to buy or
sell stocks or other securities, mutual fund shares, limited
partnership interests, commodities, real estate or any interest
therein, or in such other property, real or personal, as the Trustee
shall determine.
(b) The Trustee may cause the Trust Fund or any portion
thereof to be invested in a common trust fund established and
maintained by a national or other bank for the collective investment of
fiduciary funds even though the bank is acting as the Trustee or
Investment Manager, providing such common trust fund is a qualified
trust under the applicable section of the Code, or corresponding
provisions of future federal internal revenue laws and is exempt from
income tax under the applicable section of the Code. In the event any
assets of the Trust Fund are invested in such a common trust fund,
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the Declaration of Trust creating such common trust fund, as it may be
amended from time to time, shall be incorporated into this Plan by
reference and made a part hereof.
(c) The Trustee may deposit any portion of the Trust Fund in
savings accounts in federally insured banks or savings and loan
associations or invest in certificates of deposit issued by any such
bank or savings and loan association. The Trustee may, without
liability for interest, retain any portion of the Trust Fund in cash
balances pending investment thereof or payment of expenses.
(d) The Trustee may buy and sell put and call options, covered
or uncovered, engage in spreads, straddles, ratio writing and other
forms of options trading, including sales of options against
convertible bonds, and sales of Standard & Poor futures contracts, and
trade in and maintain a brokerage account on a cash or margin basis.
(e) The Trustee may invest any portion or all of the assets of
the Trust Fund which are attributable to the vested and nonforfeitable
interest in the Accounts of a Participant in the purchase of group or
individual Life Insurance Policies issued on the life of and for the
benefit of the Participant with the consent of the Participant, subject
to the following conditions:
(i) The aggregate premiums paid for ordinary whole
Life Insurance Policies with both nondecreasing death benefits and
nonincreasing premiums on the life of any Participant shall not at any
time exceed forty-nine percent (49%) of the aggregate amount of
Employer contributions which have been allocated to the Accounts of
such Participant.
(ii) The aggregate Premiums paid for Life Insurance
Policies on the life of any Participant which are either term,
universal or any other contracts which are not ordinary whole life
Policies shall not at any time exceed twenty-five percent (25%) of the
aggregate amount of Employer contributions which have been allocated to
the Accounts of such Participant.
(iii) The sum of one-half of the aggregate premiums
for ordinary whole Life Insurance Policies and all premium for other
Life Insurance Policies shall not at anytime exceed twenty-five percent
(25%) of the aggregate amount of Employer contributions which have been
allocated to the Accounts of such Participant.
(iv) If the Plan permits in-service distributions to
a Participant prior to his Normal Retirement Date in accordance with
Section 2.5.6(a) or (b) and the Plan does not take into account
contributions to provide benefits under Social Security in the
allocation of contributions by the Employer, the amount which may be
distributed to the Participant may be applied to the purchase of Life
Insurance Policies.
(f) The Trustee may invest the Trust Fund or any portion
thereof to acquire or hold Qualifying Employer Securities or Real
Property, provided that the portion so invested shall not exceed the
amount allowed as an investment under the Act.
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3.6.3. ADMINISTRATION OF TRUST ASSETS. Subject to the limitations
herein expressly set forth, the Trustee have the following powers and authority
in connection with the administration of the assets of the Trust:
(a) To hold and administer all contributions made by the
Employer to the Trust Fund and all income or other property derived
therefrom as a single Trust Fund, except as otherwise provided in the
Plan.
(b) To manage, control, sell, convey, exchange, petition,
divide, subdivide, improve, repair, grant options, sell upon deferred
payments, lease without limit as determined for any purpose,
compromise, arbitrate or otherwise settle claims in favor of or against
the Trust Fund, institute, compromise and defend actions and
proceedings, and to take any other action necessary or desirable in
connection with the administration of the Trust Fund.
(c) To vote any stock, bonds, or other securities of any
corporation or other issuer; otherwise consent to or request any action
on the part of any such corporation or other issuer; to give general or
special proxies or powers of attorney, with or without power of
substitution; to participate in any reorganization, recapitalization,
consolidation, merger or similar transaction with respect to such
securities; to deposit such stocks or other securities in any voting
trusts, or with any protective or like committee, or with the trustee,
or with the depositories designated thereby; to exercise any
subscription rights and conversion privileges or other options and to
make any payments incidental thereto; and generally to do all such
acts, execute all such instruments, take all such proceedings and
exercise all such rights, powers and privileges with respect to the
stock or other securities or property constituting the Trust Fund as if
the Trustee were the absolute owner thereof.
(d) To apply for and procure, at the election of any
Participant, Life Insurance Policies on the life of the Participant; to
exercise whatever rights and privileges may be granted to the Trustee
under such Policies, and to cash in, receive and collect such Policies
or the proceeds therefrom as and when entitled to do so under the
provisions thereof,
(e) To make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
(f) To register any investment held in the Trust in the
Trustee's own name or in the name of a nominee and to hold any
investment in bearer form but the books and records of the Trustee
shall at all times show that all such investments are part of the
Trust;
(g) To borrow money for the purposes of the Plan in such
amounts and upon such terms and conditions as the Trustee deems
appropriate;
(h) To commingle the assets of the Trust Fund with the assets
of other similar trusts which are exempt from income tax, whether
sponsored by the Employer, an
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affiliate of the Employer or an unrelated employer, provided that the
books and records of the Trustee shall at all times show the portion of
the commingled assets which are part of the Trust; and
(i) To do all acts whether or not expressly authorized which
the Trustee may deem necessary or proper for the protection of the
property held hereunder.
3.6.4. SEGREGATED FUNDS. Unless otherwise determined by the Trustee to
be prudent, the Trustee shall invest and reinvest each Segregated Fund without
distinction between income or principal in one or more appropriately identified
interest-bearing accounts or certificates of deposit in the name of the Trustee
and subject solely to the dominion of the Trustee in a banking institution
(which may or may not be the Trustee, if the Trustee is a banking institution)
or savings and loan association.
Any such account or certificate shall bear interest at a rate not less than the
rate of interest currently being, paid upon regular savings accounts by that
banking corporation principally situated in the community in which the Employer
has its principal business location, which has capital, surplus and undivided
profits exceeding those of any other bank so situated. Such accounts shall be
held for the benefit of the Participant for whom such Segregated Fund is
established in accordance with the terms of the Plan and the Segregated Account
of the Participant shall be credited with any interest earned in connection with
such accounts. If the Trustee determines that an alternative investment is
appropriate, the Trustee may invest the Segregated Fund in any manner permitted
with respect to the Trust Fund and such Segregated Fund shall be credited with
the net income or loss or net appreciation or depreciation in value of such
investments. No Segregated Fund shall share in any Employer contributions or
forfeitures, any net income or loss from, or net appreciation or depreciation in
value of, any investments of the Trust Fund, or any allocation for which
provision is made in this Plan which is not specifically attributable to the
Segregated Fund.
3.6.5. INVESTMENT CONTROL OPTION. If the Employer elects in the
Adoption Agreement to permit Participants to direct the investment of their
Accounts, each Participant may elect to have transferred to a Segregated Fund
and exercise investment control by appropriate direction to the Trustee with
respect to funds in the Trust Fund which do not exceed the balances in his
Accounts. To the extent that the balance in the Participant's Account with
respect to which a transfer is to be made includes his share of an Employer
contribution which has not been received by the Trustee, such transfer shall
- -not be made until such contribution is received by the Trustee. Funds so
transferred to a Segregated Fund on behalf of the Participant shall be
thereafter invested by the Trustee in such bonds, notes, debentures,
commodities, mortgages, equipment trust certificates, investment trust
certificates, preferred or common stocks, partnership interests, life insurance
policies, including universal life insurance policies, or in such other
property, real or personal (other than collectibles), wherever situated, as the
Participant shall direct from time to time in writing; provided, however, that
the Participant may not direct the Trustee to make loans to himself, nor to make
loans to the Employer; and provided further that the Trustee may limit the
investment alternatives available to the Participant in a uniform and
nondiscriminatory manner but taking into account whether the interest of the
Participant is fully vested and nonforfeitable. Any such election shall be made
by the Participant giving notice thereof to the Trustee as the Trustee deems
necessary and such notice shall specify
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the amount of such funds to be transferred and the Account from which the
transfer is to be made. Any such election shall be at the absolute discretion of
the individual Participant and shall be binding upon the Trustee. Upon any such
election being made, the amount of such funds to be transferred shall be
deducted from his Account as appropriate and added to a Controlled Account of
the Participant. All dividends and interest thereafter received with respect to
such transferred funds, as well as any appreciation or depreciation in his
investments, shall be added to or deducted from his Controlled Account.
If a Participant wishes to make such an election to transfer funds from the
Trust Fund to a Segregated Fund as of a date other than a Valuation Date, the
Trustee may defer such transfer until the next succeeding Valuation Date or, in
the Trustee's discretion, make such transfer, provided that the Trustee
determines that the nature of the assets in the Trust Fund is such that it is
feasible and practical to make, as of the date of such transfer, the adjustments
to Participants' Accounts for which provision is made in the Plan, as if such
date is a Valuation Date.
The Trustee shall not have any investment responsibility with respect to a
Participant's Segregated Fund. In the event that a Participant elects to have
any such funds transferred to a Segregated Fund and invested in particular
securities or assets pursuant to this Section, the Trustee shall not be liable
for any loss or damage resulting from the investment decision of the
Participant. As of any Valuation Date, the Participant may elect to have all or
any portion of any cash contained in his Segregated Fund transferred back to the
Trust Fund, in which case such cash shall be invested by the Trustee together
with other assets held in the Trust Fund. Any such election shall be made by
giving notice thereof to the Trustee as the Trustee deems necessary, and the
notice shall specify the amount of cash to be transferred.
As of the said Valuation Date, the amount of such funds to be so transferred
which is attributable to the balance in the Participant's Controlled Account
shall be deducted from such Account and added to the appropriate Account of the
Participant.
ARTICLE VII
LOANS
3.7.1. AUTHORIZATION. If the Employer elects in the Adoption Agreement
to permit loans to Participants or Beneficiaries, the Trustee shall establish a
participant loan program in compliance with Labor Regulation section 2550.408b.
The terms of such participant loan program shall be in writing and shall
constitute part of the Plan. Such terms shall include:
(a) The identity of the person or positions authorized to
administer the participant loan program;
(b) A procedure for applying for loans;
(c) The basis on which loans will be approved or denied;
(d) Limitations (if any) on the types and amount of loans
offered;
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(e) The procedure under the program for determining a
reasonable rate of interest;
(f) The types of collateral which may secure a participant
loan; and
(g) The events constituting default and the steps that will be
taken to preserve plan assets in the event of default.
3.7.2. SPOUSAL CONSENT. A Participant must obtain the written consent
of his spouse, if any, to the use of the Participant's interest in the Plan as
security for the loan within ninety (90) days before the date on which the loan
is to be so secured. A new consent must be obtained whenever the amount of the
loan is increased or if the loan is renegotiated, extended, renewed or otherwise
revised. The form of the consent must acknowledge the effect of such consent and
be witnessed by a Plan representative or a notary public but shall be deemed to
meet any such requirements relating to the consent of any subsequent spouse.
Such consent shall thereafter be binding with respect to the consenting spouse
or any subsequent spouse with respect to that loan.
If a valid spousal consent has been obtained, then notwithstanding any other
provision of the Plan, the portion of the Participant's vested Account balance
used as a security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of determining the
amount of the Account balance payable at the time of death or distribution but
only if the reduction is used as repayment of the loan. If less than the entire
amount of the Participant's vested Account balance (determined without regard to
the preceding sentence) is payable to the surviving spouse, the Account balance
shall be adjusted by first reducing the vested Account balance by the amount of
the security used as repayment of the loan and then determining the benefit
payable to the surviving spouse.
3.7.3. LIMITATIONS. Except to the extent provided in the participant
loan program, in no event shall the amount loaned to any Participant or
Beneficiary exceed the lesser of (a) fifty thousand dollars ($50,000.00)
(reduced by the excess, if any, of the highest outstanding balance of loans from
the Plan) during the one year period ending on the day before the date on which
the loan was made over the outstanding balance of loans from the Plan on the
date on which such loan was made) or (b) one-half of the sum of the vested and
nonforfeitable interest in his Accounts, determined as of the Valuation Date
coinciding with or immediately preceding such loan. For the purposes hereof, all
loans from all plans of the Employer and other members of a group of employers
described in Sections 414(b), (c), (m) and (o) of the Code shall be aggregated.
All loans must be adequately secured and bear a reasonable interest rate. No
Participant loan shall exceed the present value of the Participant's vested
Account balance. In the event of a default, foreclosure on the note evidencing
the loan and attachment of the security shall not occur until a distributable
event occurs.
3.7.4. AVAILABILITY. Loans, if any, must be available to all
Participants and Beneficiaries without regard to any individual's race, color,
religion, sex, age or national origin. Loans shall be made available to all
Participants and Beneficiaries and loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made available to
other employees.
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3.7.5. PROHIBITIONS. A loan shall not be made to a five (5%) percent or
greater shareholder-employee of an S corporation, an owner of more than ten
(10%) percent of either the capital interest or the profits interest of an
unincorporated Employer, a family member (as defined in section 267(c)(4) of the
Code) of such persons, or a corporation controlled by such persons through the
ownership, directly or indirectly, of fifty (50%) percent or more of the total
voting power or value of all shares of all classes of stock of the corporation,
unless an exemption for the loan is obtained pursuant to section 408 of the Act.
ARTICLE VIII
BENEFICIARIES
3.8.1. DESIGNATION OF BENEFICIARIES. Each Participant shall have the
right to designate a Beneficiary or Beneficiaries and contingent or successive
Beneficiaries to receive any benefits provided by this Plan which become payable
upon the Participant's death. The Beneficiaries may be changed at any time or
times by the filing of a new designation with the Plan Administrator, and the
most recent designation shall govern. Notwithstanding the foregoing and subject
to the provisions of Section 2.5.2(e)(3), the designated Beneficiary shall be
the surviving spouse of the Participant, unless such surviving spouse consents
in writing to an alternate designation and the terms of such consent acknowledge
the effect of such alternate designation and the consent is witnessed by a
representative of the Plan or by a notary public. A spouse may not revoke the
consent without the approval of the Participant. The designation of a
Beneficiary other than the spouse of the Participant or a form of benefits with
the consent of such spouse may not be changed without the consent of such spouse
and any consent must acknowledge the specific non-spouse Beneficiary, including
any class of Beneficiaries or any contingent Beneficiaries.
3.8.2. ABSENCE OR DEATH OF BENEFICIARIES. If a Participant dies without
having a beneficiary designation then in force, or if all of the Beneficiaries
designated by a Participant predecease him, his Beneficiary shall be his
surviving spouse, or if none, his surviving children, equally, or if none, such
other heirs or the executor or administrator of his estate as the Plan
Administrator shall select.
If a Participant dies survived by Beneficiaries designated by him and if all
such surviving Beneficiaries thereafter die before complete distribution of such
deceased Participant's interest, the estate of the last of such designated
Beneficiaries to survive shall be deemed to be the Beneficiary of the
undistributed portion of such interest.
3.8.3. SURVIVING SPOUSE ELECTION. If the Plan is designated in the
Adoption Agreement as a Cash or Deferred Profit Sharing Plan or a Profit Sharing
Plan and the Employer does not elect a life annuity form of distribution in the
Adoption Agreement, a surviving spouse, who has not consented to an alternate
designation under Section 3.8.1, above, may elect to have distribution of the
Participant's vested Account balance commence within the 90-day period following
the date of the Participant's death. The Account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance with the
provisions of the Plan governing the adjustment of account balances for other
types of distributions.
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ARTICLE IX
CLAIMS
3.9.1. CLAIM PROCEDURE. Any Participant or Beneficiary who is entitled
to a payment of a benefit for which provision is made in this Plan shall file a
written claim with the Plan Administrator on such forms as shall be furnished to
him by the Plan Administrator and shall furnish such evidence of entitlement to
benefits as the Plan Administrator may reasonably require. The Plan
Administrator shall notify the Participant or Beneficiary in writing as to the
amount of benefit to which he is entitled, the duration of such benefit, the
time the benefit is to commence and other pertinent information concerning his
benefit. If a claim for benefit is denied by the Plan Administrator, in whole or
in part, the Plan Administrator shall provide adequate notice in writing to the
Participant or Beneficiary whose claim for benefit has been denied within ninety
(90) days after receipt of the claim unless special circumstances require an
extension of time for processing the claim. If such an extension of time for
processing is required, written notice indicating the special circumstances and
the date by which a final decision is expected to be rendered shall be furnished
to the Participant or Beneficiary. In no event shall the period of extension
exceed one hundred eighty (180) days after receipt of the claim. The notice of
denial of the claim shall set forth (a) the specific reason or reasons for the
denial; (b) specific reference to pertinent Plan provisions on which the denial
is based; (c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary; and (d) a statement that any appeal of the denial must
be made by giving to the Plan Administrator, within sixty (60) days after
receipt of the notice of the denial, written notice of such appeal, such notice
to include a full description of the pertinent issues and basis of the claim.
The Participant or Beneficiary (or his duly authorized representative) may
review pertinent documents and submit issues and comments in writing to the Plan
Administrator. If the Participant or Beneficiary fails to appeal such action to
the Plan Administrator in writing within the prescribed period of time, the Plan
Administrator's adverse determination shall be final, binding and conclusive.
3.9.2. APPEAL. If the Plan Administrator receives from a Participant or
a Beneficiary, within the prescribed period of time, a notice of an appeal of
the denial of a claim for benefit, such notice and all relevant materials shall
immediately be submitted to the Employer. The Employer may hold a hearing or
otherwise ascertain such facts as it deems necessary and shall render a decision
which shall be binding upon both parties. The decision of the Employer shall be
made within sixty (60) days after the receipt by the Plan Administrator of the
notice of appeal, unless special circumstances require an extension of time for
processing, in which case a decision of the Employer shall be rendered as soon
as possible but not later than one hundred twenty (120) days after receipt of
the request for review. If such an extension of time is required, written notice
of the, extension shall be furnished to the claimant prior to the commencement
of the extension. The decision of the Employer shall be in writing, shall
include specific reasons for the decision, written in a manner calculated to be
understood by the claimant, as well as specific references to the pertinent Plan
provisions on which the decision is based and shall be promptly furnished to the
claimant.
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ARTICLE X
AMENDMENT AND TERMINATION
3.10.1. RIGHT TO AMEND.
(a) The Employer may at any time or times amend the Plan and
the provisions of the Adoption Agreement, in whole or in part. Subject
to subsection (b), an Employer that amends the Plan shall no longer
participate in this prototype plan and shall be considered to have an
individually designed plan.
(b) The Employer may change the choice of options in the
Adoption Agreement, add overriding language in the Adoption Agreement
when such language is necessary to satisfy Section 415 or 416 of the
Code because of the required aggregation of multiple plans and add
certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption shall not cause the Plan
to be treated as individually designed. An Employer that amends the
Plan for any other reason, including a waiver of the minimum funding
requirements under Section 412(d) of the Code, shall no longer
participate in this prototype plan and shall be considered to have an
individually designed plan.
An Employer that has adopted a standardized regional prototype plan may
amend the trust or custodial account document provided such amendment
merely involves the specifications of the names of the Plan, Employer,
trustee or custodian, Plan Administrator or other fiduciaries, the
trust year, or the name of any pooled trust in which the Plan's trust
will participate.
An Employer that has adopted a non-standardized regional prototype plan
will not be considered to have an individually designed plan merely
because the Employer amends administrative provisions of the trust or
custodial account document (such as provisions relating to investments
and duties of trustees) so long as the amended provisions are not in
conflict with any other provision of the Plan and do not cause the Plan
to fail to qualify under Section 401(a) of the Code.
3.10.2. MANNER OF AMENDING. Each amendment of this Plan shall be made
by delivery to the Trustee of a copy of the resolution of the Employer which
sets forth such amendment.
3.10.3. LIMITATIONS ON AMENDMENTS. No amendment shall be made to this
Plan which shall:
(a) Directly or indirectly operate to give the Employer any
interest whatsoever in the assets of the Trust or to deprive any
Participant or Beneficiary of his vested and nonforfeitable interest in
the assets of the Trust as then constituted, or cause any part of the
income or corpus of the Trust to be used for, or diverted to purposes
other than the exclusive benefit of Employees or their Beneficiaries;
(b) Increase the duties or liabilities of the Trustee without
the Trustee's prior written consent;
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(c) Change the vesting schedule under the Plan if the
nonforfeitable percentage of the accrued benefit derived from Employer
contributions (determined as of the later of the date such amendment is
adopted or the date such amendment becomes effective) of any
Participant is less than such nonforfeitable percentage computed
without regard to such amendment; or
(d) Reduce the accrued benefit of a Participant within the
meaning of Section 411(d)(6) of the Code, except to the extent
permitted under Section 412(c)(8) of the Code. An amendment which has
the effect of decreasing a Participant's account balance or eliminating
an optional form of benefit with respect to benefits attributable to
service before the amendment shall be treated as reducing an accrued
benefit.
If a Plan amendment changes the vesting schedule or the Plan is amended
in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed
amended by an automatic change to or from a top-heavy vesting schedule,
each Participant who has completed three (3) or, in the case of
Participants who do not have at least one (1) Hour of Service in any
Plan Year beginning after 1988, five (5) or more Years of Service may
elect within a reasonable period after the adoption of such amendment
to have his nonforfeitable percentage computed without regard to such
amendment or change.
The period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end on
the latest of sixty (60) days after:
(i) the amendment is adopted;
(ii) the amendment becomes effective; or
(iii) the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
3.10.4. VOLUNTARY TERMINATION. The Employer may terminate the Plan at
any time by delivering to the Trustee an instrument in writing which designates
such termination. Following termination of the Plan, the Trust will continue
until the Distributable Benefit of each Participant has been distributed.
3.10.5. INVOLUNTARY TERMINATION. The Plan shall terminate if (a) the
Employer is dissolved or adjudicated bankrupt or insolvent in appropriate
proceedings, or if a general assignment is made by the Employer for the benefit
of creditors, or (b) the Employer loses its identity by consolidation or merger
into one or more corporations or organizations, unless within ninety (90) days
after such consolidation or merger, such corporations or organizations elect to
continue the Plan.
3.10.6. WITHDRAWAL BY EMPLOYER. The Employer may withdraw from
participation under the Plan without terminating the Trust upon making a
transfer of the Trust assets to another Plan which shall be deemed to constitute
an amendment in its entirety of the Trust.
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3.10.7. POWERS PENDING FINAL DISTRIBUTION. Until final distribution of
the assets of the Trust, the Plan Administrator and Trustee shall continue to
have all the powers provided under this Plan as are necessary for the orderly
administration, liquidation and distribution of the assets of the Trust.
3.10.8. DELEGATION TO SPONSOR. The Employer expressly delegates
authority to the Plan Sponsor the right to amend any part of the Plan on its
behalf to the extent necessary to preserve the qualified status of the Plan. For
purposes of amendments by the Plan Sponsor, the Mass Submitter shall be
recognized as the agent of the Plan Sponsor. If the Plan Sponsor does not adopt
the amendments made by the Mass Submitter, the Plan shall no longer be identical
to or a minor modifier of the mass submitter plan. The Plan Sponsor shall submit
a copy of the amendment to each Employer who has adopted the Plan after first
having received a ruling or favorable determination from the Internal Revenue
Service that the Plan as amended satisfies the applicable requirements of the
Code. The Employer may revoke the authority of the Plan Sponsor to amend the
Plan on its behalf by written notice to the Plan Sponsor of such revocation.
ARTICLE XI
PORTABILITY
3.11.1. CONTINUANCE BY SUCCESSOR. In the event of the dissolution,
consolidation or merger of the Employer, or the sale by the Employer of its
assets, the resulting successor person or persons, firm or corporations may
continue this Plan by (a) adopting the Plan by appropriate resolution; (b)
appointing a new Trustee as though the Trustee (including all members of a group
of individuals acting as Trustee) had resigned; and (c) executing a proper
agreement with the new Trustee. In such event, each Participant in this Plan
shall have an interest in the Plan after the dissolution consolidation, merger,
or sale of assets, at least equal to the interest which he had in the Plan
immediately before the dissolution, consolidation, merger or sale of assets. Any
Participants who do not accept a position with such successor within a
reasonable time shall be deemed to be terminated. If, within ninety (90) days
from the effective date of such dissolution, consolidation, merger, or sale of
assets, such successor does not adopt this Plan, as provided herein, the Plan
shall automatically be terminated and deemed to be an involuntary termination.
3.11.2. MERGER WITH OTHER PLAN. In the event of the merger or
consolidation with, or transfer of assets or liabilities to, any other deferred
compensation plan and trust, each Participant shall have an interest in such
other plan which is equal to or greater than the interest which he had in this
Plan immediately before such merger, consolidation or transfer, and if such
other plan thereafter terminates, each Participant shall be entitled to a
Distributable Benefit which is equal to or greater than the Distributable
Benefit to which he would have been entitled immediately before such merger,
consolidation or transfer if this Plan had then been terminated.
3.11.3. TRANSFER FROM OTHER PLANS. The Employer may cause all or any of
the assets held in connection with any other plan or trust which is maintained
by the Employer for the benefit of its employees and satisfies the applicable
requirements of the Code relating to qualified plans and trusts to be
transferred to the Trustee, whether such transfer is made pursuant to a merger
or consolidation of this Plan with such other plan or trust or for any other
allowable
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purpose. In addition, the Employer, by appropriate election in the Adoption
Agreement, may permit rollover to the Trustee of assets held for the benefit of
an Employee in a conduit Individual Retirement Account, a terminated plan of the
Employer, or any other plan or trust which is maintained by some other employer
for the benefit of its employees and satisfies the applicable requirements of
the Code relating to qualified plans and trusts. Any such assets so transferred
to the Trustee shall be accompanied by written instructions from the employer,
or the trustee, custodian or individual holding such assets, setting forth the
name of each Employee for whose benefit such assets have been transferred and
showing separately the respective contributions by the employer and by the
Employee and the current value of the assets attributable thereto. Upon receipt
by the Trustee of such assets, the Trustee shall place such assets in a
Segregated Fund for the Participant and the Employee shall be deemed to be one
hundred percent (100%) vested and have a nonforfeitable interest in any such
assets. Notwithstanding any provisions herein to the contrary, unless the Plan
provides a life annuity distribution option, the Plan shall not be a direct or
indirect transferee of a defined benefit pension plan, money purchase pension
plan, target benefit pension plan, stock bonus or profit sharing plan which is
subject to the survivor annuity requirements of Section 401(a)(11) and Section
417 of the Code.
3.11.4. TRANSFER TO OTHER PLANS. The Trustee, upon written direction by
the Employer, shall transfer some or all of the assets held under the Trust to
another plan or trust of the Employer meeting the requirements of the Code
relating to qualified plans and trusts, whether such transfer is made pursuant
to a merger or consolidation of this Plan with such other plan or trust or for
any other allowable purpose. In addition, upon the termination of employment of
any Participant and receipt by the Plan Administrator of a request in writing,
the Participant may request that any distribution from the Trust to which he is
entitled shall be transferred to an Individual Retirement Account, an Individual
Retirement Annuity, or any other plan or trust which is maintained by some other
employer for the benefit of its employees and satisfies the applicable
requirements of the Code relating to qualified plans and trusts. Upon receipt of
any such written request, the Plan Administrator shall cause the Trustee to
transfer the assets so directed and, as appropriate, shall direct the Insurer to
transfer to the new trustee any applicable insurance policies issued by it.
ARTICLE XII
MISCELLANEOUS
3.12.1. NO REVERSION TO EMPLOYER. Except as specifically provided in
the Plan, no part of the corpus or income of the Trust shall revert to the
Employer or be used for, or diverted to purposes other than for the exclusive
benefit of Participants and their Beneficiaries.
3.12.2. EMPLOYER ACTIONS. Any action by the Employer pursuant to the
provisions of the Plan shall be evidenced by appropriate resolution or by
written instrument executed by any person authorized by the Employer to take
such action.
3.12.3. EXECUTION OF RECEIPTS AND RELEASES. Any payment to any person
eligible to receive benefits under this Plan, in accordance with the provisions
of the Plan, shall, to the extent
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thereof, be in full satisfaction of all claims hereunder. The Plan Administrator
may require such person, as a condition precedent to such payment, to execute a
receipt and release therefore in such form as he shall determine.
3.12.4. RIGHTS OF PARTICIPANTS LIMITED. Neither the creation of this
Plan and Trust nor anything contained in this Plan or the Adoption Agreement
shall be construed as giving any Participant, Beneficiary or Employee any equity
or other interest in the assets, business or affairs of the Employer, or the
right to complain about any action taken by or about any policy adopted or
pursued by, the Employer, or as giving any Employee the right to be retained in
the service of the Employer; and all Employees shall remain subject to discharge
to the same extent as if the Plan had never been executed. Prior to the time
that distributions are made in conformity with the provisions of the Plan,
neither the Participants, nor their spouses, Beneficiaries, heirs-at-law, or
legal representatives shall receive or be entitled to receive cash or any other
thing of current exchangeable value, from either the Employer or the Trustee as
a result of the Plan or the Trust.
3.12.5. PERSONS DEALING WITH TRUSTEE PROTECTED. No person dealing with
the Trustee shall be required or entitled to see to the application of any money
paid or property delivered to the Trustee, or determine whether or not the
Trustee is acting pursuant to the authorities granted to the Trustee hereunder
or to authorizations or directions herein required. The certificate of the
Trustee that the Trustee is acting in accordance with the Plan shall protect any
person relying thereon.
3.12.6. PROTECTION OF THE INSURER. An Insurer shall not be responsible
for the validity of the Plan or Trust and shall have no responsibility for
action taken or not taken by the Trustee, for determining the propriety of
accepting premium payments or other contributions, for making payments in
accordance with the direction of the Trustee, or for the application of such
payments. The Insurer shall be fully protected in dealing with any
representative of the Employer or any one of a group of individuals acting as
Trustee. Until written notice of a change of Trustee has been received by an
Insurer at its home office, the Insurer shall be fully protected in dealing with
any party acting as Trustee according to the latest information received by the
Insurer at its home office.
3.12.7. NO RESPONSIBILITY FOR ACT OF INSURER. Neither the Employer, the
Plan Administrator nor the Trustee shall be responsible for any of the
following, nor shall they be liable for instituting action in connection with:
(a) The validity of policies or policy provisions;
(b) Failure or refusal by the Insurer to provide benefits
under a policy;
(c) An act by a person which may render a policy invalid or
unenforceable; or
(d) Inability to perform or delay in performing an act, which
inability or delay is occasioned by a provision of a policy or a
restriction imposed by the Insurer.
3.12.8. INALIENABILITY. The right of any Participant or his Beneficiary
in any distribution hereunder or to any separate Account shall not be subject to
alienation, assignment or transfer, voluntarily or involuntarily, by operation
of law or otherwise, except as may be
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expressly permitted herein. No Participant shall assign, transfer, or dispose of
such right nor shall any such right be subjected to attachment, execution,
garnishment, sequestration, or other legal, equitable, or other process.
The preceding shall also apply to the creation, assignment, or recognition of a
right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to be a qualified
domestic relations order, as defined in Section 414(p) of the Code, or any
domestic relations order entered before January 1, 1985.
In the event a Participant's benefits are attached by order of any court, the
Plan Administrator may bring an action for a declaratory judgment in a court of
competent jurisdiction to determine the proper recipient of the benefits to be
paid by the Plan. During the pendency of the action, the Plan Administrator
shall cause any benefits payable to be paid to the court for distribution by the
court as it considers appropriate.
3.12.9. DOMESTIC RELATIONS ORDERS. The Plan Administrator shall adhere
to the terms of any judgment, decree or order (including approval of a property
settlement agreement) which relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child or other
dependent of a Participant and is made pursuant to a state domestic relations
law (including a community property law) and which creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee the
right to, receive all or a portion of the benefits payable with respect to a
Participant.
Any such domestic relations order must clearly specify the name and last known
mailing address of the Participant and the name and mailing address of each
alternate payee covered by the order, the amount or percentage of the
Participant's benefit to be paid by the Plan to each such alternate payee, or
the manner in which such amount or percentage is to be determined, the number of
payments or period to which such order applies, and each plan to which such
order applies.
Any such domestic relations order shall not require the Plan to provide any type
or form of benefit, or any option not otherwise provided under the Plan, to
provide increased benefits (determined on the basis of actuarial value) or the
payment of benefits to an alternate payee which are required to be paid to
another alternate payee under another order previously determined to be a
qualified domestic relations order. Notwithstanding the foregoing sentence, a
domestic relations order may require the payment of benefits to an alternate
payee before the Participant has separated from service on or after the date on
which the Participant attains or would have attained the earliest retirement age
under the Plan as if the Participant had retired on the date on which such
payment is to begin under such order (but taking into account only the present
value of the benefits actually accrued and not taking into account the present
value of any Employer subsidy for early retirement) and in any form in which
such benefits may be paid under the Plan to the Participant (other than the form
of a joint and survivor annuity with respect to the alternate payee and his or
her subsequent spouse). The interest rate assumption mid in determining the
present value shall be five (5%) percent. For these purposes, the earliest
retirement age under the Plan means the earlier of: (a) the date on which the
Participant is entitled to a distribution under the Plan, or (b) the later of
the date the Participant attains age 50, or the earliest date on which the
Participant could begin receiving benefits under the Plan if the Participant
separated from service.
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If the Employer so elects in the Adoption Agreement, distributions may be made
to an alternate payee even though the Participant may not receive a distribution
because he continues to be employed by the Employer.
To the extent provided in the qualified domestic relations order, the former
spouse of a Participant shall be treated as a surviving spouse of such
Participant for purposes of Sections 401(a)(11) and 417 of the Code (and any
spouse of the Participant shall not be treated as a spouse of the Participant
for such purposes) and if married for at least one (1) year, the surviving
former spouse shall be treated as meeting the requirements of Section 417(d) of
the Code.
The Plan Administrator shall promptly notify the Participant and each alternate
payee of the receipt of a domestic relations order by the Plan and the Plan's
procedures for determining the qualified status of domestic relations orders.
Within a reasonable period after receipt of a domestic relations order, the Plan
Administrator shall determine whether such order is a qualified domestic
relations order and shall notify the Participant and each alternate payee of
such determination. If the Participant or any affected alternate payee disagrees
with the determinations of the Plan Administrator, the disagreeing party shall
be treated as a claimant and the claims procedure of the Plan shall be followed.
The Plan Administrator may bring an action for a declaratory judgment in a court
of competent jurisdiction to determine the proper recipient of the benefits to
be paid by the Plan.
During any period in which the issue of whether a domestic relations order is a
qualified domestic relations order is being determined (by the Plan
Administrator, by a court of competent jurisdiction or otherwise), the Plan
Administrator shall separately account for the amounts which would have been
payable to the alternate payee during such period if the order had been
determined to be a qualified domestic relations order. If, within the eighteen
(18) month period beginning on the date on which the first payment would be
required to be made under the domestic relations order, the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Plan Administrator shall pay the segregated amounts, including any interest
thereon, to the person or persons entitled thereto.
If within such eighteen (18) month period it is determined that the order is not
a qualified domestic relations order or the issue as to whether such order is a
qualified domestic relations order is not resolved, then the Plan Administrator
shall pay the segregated amounts, including any interest thereon, to the person
or persons who would have been entitled to such amounts if there had been no
order. Any determination that an order is a qualified domestic relations order
which is made after the close of the eighteen (18) month period shall be applied
prospectively only.
3.12.10. AUTHORIZATION TO WITHHOLD TAXES. The Trustee is authorized in
accordance with applicable law to withhold from distribution to any payee such
sums as may be necessary to cover federal and state taxes which may be due with
respect to such distributions.
3.12.11. MISSING PERSONS. If the Trustee mails by registered or
certified mail, postage prepaid, to the last known address of a Participant or
Beneficiary, a notification that the Participant or Beneficiary is entitled to a
distribution and if (a) the notification is returned by the post office because
the addressee cannot be located at such address and if neither the Employer,
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the Plan Administrator nor the Trustee shall have any knowledge of the
whereabouts of such Participant or Beneficiary within three (3) years from the
date such notification was mailed, or (b) within three (3) years after such
notification was mailed to such Participant or Beneficiary, he does not respond
thereto by informing the Trustee of his whereabouts, the ultimate disposition of
the then undistributed balance of the Distributable Benefit of such Participant
or Beneficiary shall be determined in accordance with the then applicable
Federal laws, rules and regulations. If any portion of the Distributable Benefit
is forfeited because the Participant or Beneficiary cannot be found, such
portion shall be reinstated if a claim is made by the Participant or
Beneficiary.
3.12.12. NOTICES. Any notice or direction to be given in accordance
with the Plan shall be deemed to have been effectively given if hand delivered
to the recipient or sent by certified mail, return receipt requested, to the
recipient at the recipient's last known address. At any time that a group of
individuals is acting as Trustee, notice to the Trustee may be given by giving
notice to any one or more of such individuals.
3.12.13. GOVERNING LAW. The provisions of this Plan shall be construed,
administered and enforced in accordance with the provisions of the Act and, to
the extent applicable, the laws of the state in which the Employer has its
principal place of business. All contributions to the Trust shall be deemed to
take place in such state.
3.12.14. SEVERABILITY OF PROVISIONS. In the event that any provision of
this Plan shall be held to be illegal, invalid or unenforceable for any reason,
said illegality, invalidity or unenforceability shall not affect the remaining
provisions, but shall be fully severable and the Plan shall be construed and
enforced as if said illegal, invalid or unenforceable provisions had never been
inserted herein.
3.12.15. GENDER AND NUMBER. Whenever appropriate, words used in the
singular shall include the plural, and the masculine gender shall include the
feminine gender.
3.12.16. BINDING EFFECT. The Plan and Adoption Agreement, and all
actions and decisions hereunder, shall be binding upon the heirs, executors,
administrators, successors and assigns of any and all parties hereto and
Participants, present and future.
3.12.17. QUALIFICATION UNDER INTERNAL REVENUE LAWS. The Employer
intends that the Trust qualify under the applicable provisions of the Code.
Until advised to the contrary, the Trustee may assume that the Trust is so
qualified and is entitled to tax exemption under the Code. If the Plan of the
Employer fails to attain or retain qualification, the Plan of the Employer shall
no longer participate in this prototype and shall be considered an individually
designed plan.
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MODEL SECTION 401(a)(31) AMENDMENT TO
ANTHRA RETIREMENT SAVINGS PLAN
SECTION 1. This Article applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by the plan administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
SECTION 2. Definitions.
SECTION 2.1. Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
SECTION 2.2. Eligible retirement plan: An eligible retirement plan is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
SECTION 2.3. Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or the former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
SECTION 2.4. Direct rollover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
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MODEL SECTION 401(a)(17) AMENDMENT TO
ANTHRA RETIREMENT SAVINGS PLAN
SECTION 401(a)(17) LIMITATION
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consist of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in the provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan year,
the compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
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REVENUE PROCEDURE 93-47 AMENDMENT TO
ANTHRA RETIREMENT SAVINGS PLAN
The following language, applicable to distributions made on or after January 1,
1993, is hereby inserted following the final sentence of section 2.5.2(j) of the
ABR Benefits Services, Inc. Defined Contribution Plan and Trust.
"If a distribution is one to which sections 401(a)(11) and 417 of
the Internal Revenue Code do not apply, such distribution may
commence less thirty 30 days after the notice required under section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(1) the plan administrator clearly informs the participant that
the participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and if applicable, a particular distribution
option), and
(2) the participant, after receiving the notice, affirmatively
elects a distribution."
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The Following Amendments to the Anthra Retirement Savings Plan are word-for-word
identical to the Model Amendments provided in "IRS Revenue Procedure 96-49 Model
Amendments under Section 414(u) of the Internal Revenue Code, as it appeared in
Internal Revenue Bulletin 1996-43, dated October 8, 1996," and are hereby
adopted March 1, 1997.
UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT
MODEL AMENDMENTS
AMENDMENT 1:
"Notwithstanding any provision of this plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with section 414(u) of the Internal Revenue Code."
AMENDMENT 2:
"Loan repayments will be suspended under this plan as permitted under section
414(u)(4) of the Internal Revenue Code."
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<PAGE> 88
Warning: This amendment will not be effective if this plan has accepted
transfers from a pension plan subsequent to the plan's most recent determination
letter and the adoption of this amendment. In this case the amendment will be
prospective only and the plan will not have extended reliance. You should read
Rev. Rule 94-76 and Rev. Proc. 96-55 to develop an understanding how this
amendment works in conjunction with your most recent Determination Letter.
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ANTHRA RETIREMENT SAVINGS PLAN
MONEY PURCHASE PLAN TO PROFIT SHARING PLAN TRANSFERS
MODEL AMENDMENT
(FOR ALL PROFIT SHARING AND 401(k) PLANS)
The following Model Plan Amendment is word for word identical to the language
provided in IRS Revenue Procedure 96-55.
This amendment is effective March 1, 1997.
Notwithstanding any provision of this plan to the contrary, to the extent that
any optional form of benefit under this plan permits a distribution prior to the
employee's retirement, death, disability, or severance from employment and prior
to plan termination, the optional form of benefit is not available with respect
to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of Section
414(1) of the Internal Revenue Code, to this plan from a money purchase pension
qualified under Section 401(a) of the Internal Revenue Code (other than any
portion of those assets and liabilities attributable to voluntary employee
contributions).
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Exhibit 10.18
--------------------------------------------------------
ADOPTION AGREEMENT
FOR THE ABR BENEFITS SERVICES, INC. REGIONAL PROTOTYPE
STANDARDIZED CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
(WITH PAIRING PROVISIONS)
-------------------------------------------------------------
<PAGE> 2
ADOPTION AGREEMENT
FOR THE ABR BENEFITS SERVICES, INC. REGIONAL PROTOTYPE
STANDARDIZED CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
(WITH PAIRING PROVISIONS)
The ABR Benefits Services, Inc. Regional Prototype Standardized Cash or Deferred
Profit Sharing Plan and Trust ("the Plan and Trust") is hereby adopted by:
ANTHRA PHARMACEUTICALS, INC. (the "Employer").
The Plan and Trust as applicable to the Employer shall be known as:
ANTHRA RETIREMENT SAVINGS PLAN
The Plan and Trust is effective as of: June 1, 1998.
(Specify, if applicable.)
( ) a. The Plan and Trust is an amendment of a preexisting Plan which was
originally effective as of: ____________________________.
( ) b. The Plan and Trust is an amendment and restatement of a preexisting Plan
which was originally effective as of: ____________________________.
*** CAUTION ***
FAILURE TO FILL OUT THE ADOPTION AGREEMENT PROPERLY MAY
RESULT IN DISQUALIFICATION OF THE PLAN
PART I. The following identifying information pertains to the Employer and the
Plan and Trust:
1. EMPLOYER ADDRESS: 103 Carnegie Center, Suite 102
Princeton, NJ 08540
2. EMPLOYER TELEPHONE: (609) 514-1060
3. EMPLOYER TAX ID: 22-3007972
4. EMPLOYER FISCAL YEAR: July 1 to June 30
5. THREE DIGIT PLAN NUMBER: 001
6. TRUST ID NUMBER: Applied For
7. PLAN FISCAL YEAR (MUST BE 12 January 1 to December 31
CONSECUTIVE MOS.)
2
<PAGE> 3
8. SHORT INITIAL PLAN YEAR: June 1, 1998 to December 31,
1998
9. PLAN AGENT: Anthra Pharmaceuticals, Inc.
103 Carnegie Center, Suite 102
Princeton, NJ 08540
10. PLAN ADMINISTRATOR: Anthra Pharmaceuticals, Inc.
103 Carnegie Center, Suite 102
Princeton, NJ 08540
11. PLAN ADMINISTRATOR ID NUMBER: 22-3007972
12. PLAN TRUSTEES: Michael C. Walker
Karen Krumeich
Rosella M. Lucia
103 Carnegie Center, Suite 102
Princeton, NJ 08540
13. IRS DETERMINATION: N/A
LETTER DATE
(LEAVE BLANK FOR A NEW PLAN)
14. IRS FILE FOLDER NUMBER: N/A
(LEAVE BLANK FOR A NEW PLAN)
15. LEGAL ORGANIZATION OF EMPLOYER:
( ) a. Sole Proprietorship
( ) b. Partnership
(x) c. C Corporation
( ) d. S. Corporation
( ) e. Not for Profit Corporation
( ) f. Personal Service Corporation
( ) g. Other - Explain
16. BUSINESS CODE: 5129
17. STATE OF LEGAL CONSTRUCTION: New Jersey
18. OTHER MEMBERS OF A CONTROLLED GROUP OR AFFILIATED SERVICE GROUP:
(If any, each member should sign Adoption Agreement or otherwise
satisfy applicable participation requirements. Leave blank if not
applicable)
Controlled Group
(x) a. Not Applicable
( ) b. Other Members
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<PAGE> 4
Affiliated Service Group
(x) a. Not Applicable
( ) b. Other Members
4
<PAGE> 5
PART II. The Plan contains certain predetermined design features intended to
provide the statutory requirement or most commonly adopted feature but permits
the selection of alternative features. If an Employer desires to retain the
predetermined design feature, select the provision designated Plan Provision. If
an alternative design feature is desired, select the appropriate provision.
Unless specifically provided to the contrary, only one selection may be made for
each design category. Section references are to relevant Plan Sections. Defined
terms have the meanings provided in the Plan.
A. ELIGIBILITY AND SERVICE PROVISIONS
1. ELIGIBLE EMPLOYEES - Section 1.2.23 provides that all employees,
including employees of certain related businesses and leased employees
are eligible except for certain union members and non-resident aliens.
(Specify all applicable)
(x) a. Plan Provision
( ) b. Include members of collective bargaining unit
2. ELIGIBILITY REQUIREMENTS (SEE SECTION 2.1.1) - An Employee is eligible
to participate in Non-Elective Contribution portions of the Plan if he
satisfies the following requirements during the Eligibility Computation
Period. (Specify one option or any combination other than c and d.
Selecting more than one option means that an Employee must meet all
indicated requirements for eligibility, except for option e. Option e
overrides all other requirements):
( ) a. Date of hire, i.e. no age or service required (no
other choices may be selected)
(x ) b. Minimum Age of 21 years (Not to exceed 21, partial
years may be used)
( ) c. Minimum of _____ months of service (Cannot require
more than 24 months, or more than 12 months if full
vesting after not more than 2 Years of Service is not
selected; if periods other than whole years are
selected an Employee cannot be required to complete
any specified number of Hours of Service to receive
credit for the fractional year)
( ) d. ______ Hours of Service required during each 12 month
Eligibility Computation Period (cannot exceed 1000)
( ) e. Employed on __/__/__ (For new plans only, select an
additional option if this provision is selected)
( ) f. Not applicable. Non-Elective Contributions are not
permitted.
3. FOR THE PURPOSES OF HAVING ELECTIVE CONTRIBUTIONS made on the
Employee's behalf, Section 2.1.1 provides that, unless the Employer
specifies otherwise in the Adoption Agreement, an Employee must
complete 1000 Hours of Service during the Eligibility Computation
Period. For these purposes, an Employee is eligible if the following
requirements are satisfied: (Select all applicable. Selecting more than
one option means that an Employee must meet all indicated requirements
for eligibility, except for option e. Option e overrides all other
requirements):
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<PAGE> 6
( ) a. Date of hire, i.e. no age or service requirement
(No other choices may be selected)
(x ) b. Minimum Age of 21 years (Not to exceed 21, partial
years may be specified)
( ) c. Minimum of ___ months of service (Not to exceed 12,
if other than full years are selected hours may not
be specified)
( ) d. _______ Hours of Service required during each 12
month Eligibility Computation Period (cannot exceed
1000)
( ) e. Employed on ___/__/__. (For new plans only, select
an additional option if this provision is selected)
4. MATCHING ELIGIBILITY REQUIREMENTS (SEE SECTION 2.1.1) - An Employee is
eligible to participate in the Matching Contributions portion of the
Plan if he satisfies the following requirements during the Eligibility
Computation Period. (Specify one option or any combination other than c
and d. Selecting more than one option means that an Employee must meet
all indicated requirements for eligibility, except for option e. Option
e overrides all other requirements):
( ) a. Date of hire, i.e. no age or service required (No
other choices may be selected)
(x) b. Minimum Age of 21 years (Not to exceed 21, partial
years may be used)
( ) c. Minimum of __ months of service (Cannot require more
than 24 months, or more than 12 months if full
vesting after not more than 2 Years of Service is not
selected; if periods other than whole years are
selected an Employee cannot be required to complete
any specified number of Hours of Service to receive
credit for the fractional year)
( ) d. ______ Hours of Service required during each 12 month
Eligibility Computation Period (cannot exceed 1000)
( ) e. Employed on __/__/__. (For new plans only, select an
additional option if this provision is selected)
( ) f. Not applicable. Matching Contributions are not
permitted.
5. ELIGIBILITY COMPUTATION PERIOD - Section 1.2.22 provides that the
initial eligibility computation period begins on the date of hire and
the subsequent periods commence on each annual anniversary of such
date. (Select one)
( ) a. Plan Provision
(x) b. The eligibility computation periods subsequent to the
initial eligibility computation period are the Plan
Year beginning with the first Plan Year commencing
prior to the first anniversary of the employment
commencement date.
6. HOUR OF SERVICE - Section 1.2.35 provides that service will be credited
on the basis of actual hours for which the employee is paid or entitled
to payment. If records of actual hours are not maintained, credit is
given on the basis of: (Select one)
(x) a. Plan Provision - Records are maintained
( ) b. Days Worked - An Employee will be credited with 10
Hours of Service if he is credited with at least 1
Hour of Service during the day
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<PAGE> 7
( ) c. Weeks Worked - An Employee will be credited with 45
Hours of Service if he is credited with at least 1
Hour of Service during the week
( ) d. Semi-Monthly Payroll Period - An Employee will be
credited with 95 Hours of Service if he is credited
with at least 1 Hour of Service during the payroll
period
( ) e. Months worked - An Employee will be credited with 190
Hours of Service if he is credited with at least 1
Hour of Service during the month
7. SERVICE WITH PREDECESSOR EMPLOYERS - Section 1.2.35 provides that
service with predecessor employers is treated as service for the
Employer. Where applicable, identify the predecessor employer(s) and
any document(s) which provides for the crediting of service with such
predecessor(s):
(x) a. Not applicable.
( ) b. Service with the following entities shall be credited
as service under this plan: _________________________
Service with the above entities has been determined
under the terms of the following documents:
___________________________________
8. ENTRY DATE - Section 2.1.2 provides that an Employee who satisfies any
eligibility requirements enters the Plan on the Entry Date. For this
purpose the Entry Date is the: (Select one)
( ) a. First day of next Plan Year or ___ months (Not to
exceed 6) after satisfying the eligibility
requirements, if earlier
( ) b. First day of _ month (Not more than 6) after
satisfying eligibility requirements or the first day
of the next Plan Year, if earlier
( ) c. Date of satisfying the eligibility requirements
( ) d. First day of Plan Year in which the eligibility
requirements are satisfied
( ) e. First day of Plan Year nearest to the date the
eligibility requirements are satisfied
( ) f. Semiannual - ( ) first or ( ) last day of 6 month
periods, beginning with first of Plan Year,
coincident with or after satisfying eligibility
requirements
( ) g. Quarterly - ( ) first or ( ) last day of 3 month
periods, beginning with first of Plan Year,
coincident with or after satisfying eligibility
requirements
(x) h. Monthly - (x) first or ( ) last day of each month of
the Plan Year, coincident with or after satisfying
eligibility requirements
( ) i. First day of the Plan Year coincident with or
immediately following the date the eligibility
requirements are satisfied. (May be selected only if
eligibility requirements of Plan do not require more
than 6 months of service (18 months if 100% immediate
vesting) and attainment of age 20 1/2.)
( ) j Last day of the Plan Year coincident with or after
satisfying the eligibility requirements. (May be
selected only if eligibility requirements of Plan do
not require more than 6 months of service (18 months
if 100% immediate vesting) and attainment of age 20
1/2).
7
<PAGE> 8
NOTE. The Entry Date should be coordinated with the Compensation
Computation Period.
8
<PAGE> 9
9. BREAK IN SERVICE - Section 1.2.8 provides that a Break in Service
occurs if an Employee fails to complete more than 500 hours of service
during the applicable computation period unless a lesser number is
specified. (Select one)
(x) a. Plan Provision
( ) b. A Break will occur if the Employee fails to complete
more than ____ (Not to exceed 500) Hours of Service
B. DATE PROVISIONS
1. ANNIVERSARY DATE - Section 1.2.5 provides that the Anniversary Date is
the last day of the Plan Year unless another date is specified.
(Select one)
(x) a. Plan Provision - No other date is specified.
( ) b. The first day of the Plan Year.
( ) c. Other - Specify. (Must be at least annually)
2. VALUATION DATE - Section 1.2.63 provides that the Valuation Date is the
date or dates specified in the Adoption Agreement. (Select one)
( ) a. Anniversary Date
( ) b. Semiannually on the last day of each 6 month period
beginning with the first of the Plan Year
( ) c. Quarterly on the last day of each 3 month period
beginning with the first of the Plan Year
( ) d. Monthly on the last day of each month of the Plan
Year
( ) e. Last day of Plan Year (use option (a) if Anniversary
Date is last day of the Plan Year
(x) f. Other - Specify. (Must be at least annually)
DAILY VALUATION
3. NORMAL RETIREMENT DATE - Section 1.2.46 permits the adoption of a
Normal Retirement Date. (Select one)
(x) a. Date Normal Retirement Age is attained
( ) b. First day of month in which Normal Retirement Age is
attained
( ) c. First day of month nearest date Normal Retirement Age
is attained
( ) d. First day of month coincident with or next following
the date Normal Retirement Age is attained
( ) e. Anniversary Date nearest date Normal Retirement Age
is attained
( ) f. Anniversary Date coincident with or next following
date Normal Retirement Age is attained
4. NORMAL RETIREMENT AGE - For each Participant the Normal Retirement Age is:
9
<PAGE> 10
(x) a. Age 65 (not to exceed 65)
( ) b. The later of age __ (not to exceed 65) or the __ (not
to exceed the fifth (5th)) anniversary of the
participation commencement date, if later. The
participation commencement date is the first day of
the Plan Year in which a Participant commenced
participation in the Plan. Solely for Plan Years
beginning before 1988, if the normal retirement age
was determined by reference to the anniversary of the
participation commencement date, the anniversary for
participants who first commenced participation before
the first Plan Year beginning on or after January 1,
1988 is the earlier of the tenth anniversary of the
date the participant commenced participation in the
Plan (or such anniversary as had been elected by the
Employer if less than ten) or the fifth anniversary
of the first day of the first Plan Year beginning on
or after January 1, 1988.
( ) c. Age ___ and the ___ anniversary of the participation
commencement date, if both requirements are met
earlier than the later age of 65 or the fifth (5th)
anniversary of participation
5. EARLY RETIREMENT DATE - Section 1.2.17 permits the adoption of an Early
Retirement Date: (Select one)
(x) a. The Plan does not provide an early retirement date
( ) b. The actual date the Participant attains the Early
Retirement Age
( ) c. The Anniversary Date coincident with or next
following the date the Participant attains the Early
Retirement Age
( ) d. The Valuation Date coincident with or next following
the date the Participant attains the Early Retirement
Age
( ) e. The ( ) first ( ) last day of the month coincident
with or next following the date the Participant
attains the Early Retirement Age
6. EARLY RETIREMENT AGE: (Select all applicable. If more than one option
is selected, Early Retirement Age is attained on the first date the
requirements of any option are met.)
( ) a. Age ___ (not to exceed 65)
( ) b. Age ___and ___ Years of Service
( ) c. Age __ and __ Years of Service while a Participant
( ) d. ___ years prior to the Normal Retirement Age
( ) e. Sum of age and Years of Service equals
(x) f. Not Applicable
NOTE. Cannot discriminate in favor of Highly Compensated
Employees.
C. COMPENSATION
1. COMPENSATION - See Section 1.2.10. For purposes of the Plan a
Participant's compensation is based on the Compensation Computation
Period and shall: (Select a, b, or c and d if applicable)
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<PAGE> 11
( ) a. Equal compensation as defined in Section 3401(a)
except as indicated below
( ) b. Equal compensation as defined in Section 415(c)(3)
except as indicated below
(x) c. Equal compensation as defined for the Wages, Tips,
and Other Compensation Box on Form W-2 except as
indicated below
(x) d. Include compensation which is not includible in gross
income by reason of Sections 402(h)(1)(B)(SEP
deferrals), 125 (Cafeteria Plan), 402(a)(8) (401(k)
deferrals), 403(b) or 457(b)
2. THE COMPENSATION COMPUTATION PERIOD IS:
(x) a. The Plan Year
( ) b. The calendar year ending with or within the Plan Year
3. FOR THE INITIAL PLAN YEAR OF PARTICIPATION, include Compensation from:
(Select one)
(x) a. Entry Date as a Participant
( ) b. First day of the Compensation Computation Period
which ends during the initial Plan Year of
participation
D. CONTRIBUTION AND ALLOCATION
1. NON-ELECTIVE CONTRIBUTION FORMULA - The Employer's Non-Elective
contribution to the Plan shall be: (Select one)
( ) a. Discretionary, out of profits
(x) b. Discretionary, but not limited to profits
( ) c. _____% of each Participant's Compensation. (not to
exceed 15%)
( ) d. Not applicable. Non-Elective Contributions are not
permitted.
2. ALLOCATION METHOD - The Employer Non-Elective contribution is allocated
to Participants: (Select one)
(x) a. Proportionate to Salary. Based upon each
Participant's Compensation in proportion to the
Compensation of all Participants.
( ) b. Integrated with Social Security. See Sections 2.3.1
and 2.3.3. (Select one of d. through h., below.)
( ) c. Not applicable - No Non-Elective Contributions.
The Social Security Integration Level is equal to:
( ) d. The taxable wage base under Section 230 of the Social
Security Act in effect as of the first day of the
Plan Year.
( ) e. $___ (Not to exceed the taxable wage base under
Section 230 of the Social Security Act in effect as
of the first day of the Plan Year).
( ) f. __% (Not to exceed 100) of the taxable wage base
under Section 230 of the Social Security act in
effect as of the first day of the Plan Year.
( ) g. The greater of $10,000 or 20% of the taxable wage
base under Section 230 of the Social Security Act in
effect as of the first day of the Plan Year.
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<PAGE> 12
( ) h. 80% of the taxable wage base under Section 230 of the
Social Security Act in effect as of the first day of
the Plan Year plus $1.00.
3. REQUIREMENT TO SHARE IN CONTRIBUTION ALLOCATION - An allocation of the
Employer's Non-Elective Contribution shall be made to each Participant
during the Plan Year who completes more than 500 Hours of Service
during the Plan Year or is employed as of the last day of the Plan
Year.
A participant is also eligible to share in the allocation if: (Select
all applicable)
( x) a. The Employee dies during the Plan Year.
( x) b. The Employee retires during the Plan Year.
( x) c. The Employee becomes totally disabled during the
Plan Year.
( ) d. Not applicable.
4. REQUIREMENT TO SHARE IN MATCHING ALLOCATION - An allocation of the
Employer's Matching Contribution shall be made to each Participant
during the Plan Year who completes more than 500 Hours of Service
during the Plan Year or is employed as of the last day of the Plan
Year.
A Participant is also eligible to share in the allocation if: (Select
all applicable)
( x) a. The Employee dies during the Plan Year.
( x) b. The Employee retires during the Plan Year.
( x) c. The Employee becomes totally disabled during the Plan
Year.
( ) d. Not Applicable - No Matching Contributions.
5. MATCHING CONTRIBUTIONS - The Matching Contribution by the Employer for
the Plan Year in accordance with Section 2.2.1(a)(3)(ii) is
( ) a. Matching Contributions are not permitted
(x) b. Discretionary each Plan Year
( ) c. Based upon the Allocation Method set forth below
( ) d. Based upon the Allocation Method set forth below plus
a supplemental discretionary Matching contribution
6. ALLOCATION METHOD FOR MATCHING CONTRIBUTIONS - Matching Contributions
shall be allocated to eligible Participants in an amount:
(x) a. Proportionate to the Elective Contributions made on
behalf of a Participant
( ) b. Equal to ___% of the Elective Contributions made on
behalf of a Participant
( ) c. Graded based on the dollar amount of the Elective
Contribution of each Participant as follows:
_____% of the first $ ____ plus
_____% of the next $ ____ plus
_____% of the next $ ____ plus
_____% of the next $ ____.
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<PAGE> 13
( ) d. Graded based on the percentage of compensation of the
Elective Contribution of each Participant as follows:
_____% of the first ____% plus
_____% of the next ____% plus
_____% of the next ____% plus
_____% of the next ____%.
( ) e. Graded based on the dollar amount of the Elective
Contribution of each Participant as follows:
______% if contribution is $____ or more;
______% if contribution is $____ or more;
______% if contribution is $____ or more;
______% if contribution is $____ or more.
( ) f. Graded based on the percentage of compensation of the
Elective Contribution of each Participant as follows:
_____ % if contribution is ____% or more
_____ % if contribution is ____% or more
_____ % if contribution is ____% or more
_____ % if contribution is ____% or more
( ) g. Not applicable
NOTE: Graded percentages entered in c. through f. must decrease
as percentage or amount of compensation increases.
7. IF A SUPPLEMENTAL DISCRETIONARY MATCHING CONTRIBUTION is made, Matching
Contributions shall be allocated to eligible Participants in an amount:
( ) a. Proportionate to the Elective Contributions made on
behalf of a Participant
( ) b. According to the method selected in 6b.- f. above
(x) c. Not applicable
8. MATCHING CONTRIBUTION ALLOCATION DATE - Matching Contributions are
allocated as of the Anniversary Date unless an alternate
date is selected. For the purposes of this Plan the Matching
Contribution is allocated as of: (Select one)
( ) a. Plan Provision - the Anniversary Date.
( ) b. The next Valuation Date.
(x) c. Other - Specify. (Must be allocated at least
annually)
Monthly
( ) d. Not applicable
9. LIMITATIONS ON MATCHING CONTRIBUTIONS - The Employer shall not make
Matching Contributions: (Select all applicable)
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<PAGE> 14
( ) a. With respect to Elective Contributions in excess of
__% of a Participant's Compensation
( ) b. In excess of $____ for any Participant
( ) c. To Key Employees
(x) d. Not applicable.
10. ALLOCATION OF QUALIFIED NON-ELECTIVE CONTRIBUTIONS - (Select a or b.
If a is selected, do not complete the remainder of this section)
( ) a. Qualified Non-Elective Contributions are not
permitted.
(x) b. Qualified Non-Elective Contributions shall be made at
the Employer's discretion.
Qualified Non-Elective Contributions shall be allocated (complete c and
d):
(x) c. On behalf of
( ) All Participants
( ) Solely on behalf of Participants who are not Highly
Compensated Employees
(x) Solely on behalf of Participants who are not Highly
Compensated Employees to the extent necessary to
satisfy the ACP or the ADP test
(x) d. Who are eligible to receive an allocation of
( ) Non-Elective Contributions
(x) Matching Contributions
Qualified Non-Elective Contributions shall be allocated: (Select e or
f; also select g, if applicable)
(x) e. In proportion to a Participant's Compensation.
( ) f. As a uniform dollar amount.
(x) g. To the extent necessary to satisfy the ACP test or
the ADP test.
11. LIMITATION YEAR - Section 1.2.40 provides that unless otherwise
specified the Limitation Year for purposes of the limitation imposed by
IRC Section 415 is the Plan Year. (Select one)
(x) a. Plan Provision
( ) b. Calendar year coinciding with or ending within the Plan
Year
( ) c. Twelve consecutive month period ending ___/__.
E. VESTING PROVISIONS
1. YEARS OF SERVICE - Section 1.2.65 provides that a Year of Service is
the 12 consecutive month period specified in the Adoption Agreement in
which at least 1000 Hours of Service are performed unless a lesser
number is specified. (Select all applicable)
(x) a. Use the Plan Year as the computation period
14
<PAGE> 15
( ) b. Use Eligibility Computation Period as the computation
period
(x) c. Use ___ in lieu of 1000 Hours of Service (Not to
exceed 1000 hours)
2. EXCLUDED YEARS - Section 1.2.65 provides unless otherwise
specified all Years of Service are taken into account.
(x) a. Plan Provision - Include all Years of Service
( ) b. Exclude Plan Years prior to age 18
( ) c. Exclude Plan years prior to adoption of plan or
predecessor plan. Effective date of (prior) plan:
__/__/__
3. VESTING SCHEDULE - Section 2.4.2(f) provides that benefits will
vest in accordance with the method specified in the Adoption Agreement.
Employer Accounts:
( ) a. At the rate of 20% each year after 3 Years of
Service. (20% vested in third year)
(x) b. At the rate of 20% each year after 2 Years of
Service. (20% vested in second year)
( ) c. 100% vesting upon participation.
( ) d. 100% vesting after _____ Year(s) of Service (Not to
exceed 5)
( ) e. 100% vesting at Early Retirement Date (Must also
select another alternative)
( ) f Other: (Optional vesting schedule must be at least as
favorable as a. or d.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
( ) g. Not applicable - No Non-Elective Employer
Contributions
Matching Accounts:
( ) a. At the rate of 20% each year after 3 Years of
Service. (20% vested in third year)
(X) b. At the rate of 20% each year after 2 Years of
Service. (20% vested in second year)
( ) c. 100% vesting upon participation.
( ) d. 100% vesting after ___ Year(s) of Service (Not to
exceed 5)
( ) e. 100% vesting at Early Retirement Date (Must also
select another alternative)
( ) f. Other: (Optional vesting schedule must be at least as
favorable as a. or d.)
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<PAGE> 16
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
g. Not applicable - No Matching Contributions
4. PRIOR VESTING SCHEDULE - Section 3.10.3 provides that if the Vesting
schedule has been amended to a less favorable schedule, participants are
entitled to have their vested interest calculated under the prior
schedule under certain instances.
(x) a. Not applicable. Either not amended or new schedule is more
favorable.
b. The prior schedule was
Employer Year(s) of Service Percent Vesting
--------------------------- ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
Matching
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
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<PAGE> 17
5. TOP HEAVY VESTING SCHEDULE - Section 2.6.1(c) provides that if the Plan
becomes Top Heavy, unless the Employer specifies otherwise, vesting
will be at a rate of 20% per year beginning with the second Year of
Service.
Employer Accounts:
( ) a. Plan Provision
( ) b. 100% vested after ____ Year(s) of Service (Not to
exceed 3)
( ) c. Same as non-Top Heavy vesting schedule (Must be at
least as favorable as a or b)
( ) d. Other: (Optional vesting schedule must be at least as
favorable as a. or b.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
( ) e. Not Applicable - No Employer Non-Elective
Contributions
Matching Accounts:
( ) a. Plan Provision
( ) b. 100% vested after ____Year(s) of Service (Not to
exceed 3)
(x) c. Same as non-Top Heavy vesting schedule (Must be at
least as favorable as a or b)
( ) d. Other: (Optional vesting schedule must be at least as
favorable as a. or b.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 _______
1 but less than 2 _______
2 but less than 3 _______
3 but less than 4 _______
4 but less than 5 _______
5 but less than 6 _______
6 but less than 7 _______
7 or More _______
( ) e. Not Applicable - No Matching Contributions.
17
<PAGE> 18
6. RE-EMPLOYMENT - Section 2.4.4 provides that Years of Service
completed after a Break in Service are not counted for purposes of
increasing the vested percentage attributable to service before the
Break unless reemployed within 5 years.
(x) a. Plan Provision
( ) b. Count all service after the Break
( ) c. Not applicable - 100% immediate vesting
7. FORFEITURES - Section 2.4.6 provides that forfeitures are
determined as of the last day of the Plan Year in which the
Participant's entire interest is distributed from the Plan.
(x) a. Plan Provision.
( ) b. Determine in Plan Year of 5th consecutive Break in
Service.
( ) c. Determination as of the Valuation Date coincident
with or next following the Distribution Date
( ) d. Not applicable - All benefits are fully vested. Leave
the remaining items in this Section E blank.
8. FORFEITURES OF NON-ELECTIVE CONTRIBUTIONS shall be applied to
(select all applicable):
( ) a. Supplement Non-Elective Contributions
(x) b. Reduce Non-Elective Contributions
( ) c. Reduce Qualified Non-Elective Contributions
( ) d. Supplement Matching Contributions
(x) e. Reduce Matching Contributions
9. FORFEITURES OF NON-ELECTIVE CONTRIBUTIONS shall be reallocated to
participants:
( ) a. In the same manner as Non-Elective Contributions
( ) b. In proportion to each participant's Compensation
(x) c. Not applicable. Forfeitures are applied to reduce
contributions.
NOTE. If the Plan provides for permitted disparity, forfeitures
must be allocated under the Plan's allocation formula.
10. FORFEITURES OF MATCHING CONTRIBUTIONS SHALL BE APPLIED TO: (Select
all applicable)
( ) a. Supplement Matching Contributions
(x) b. Reduce Matching contributions
( ) c. Reduce Qualified Non-Elective contributions
( ) d. Supplement Non-Elective Contributions
(x) e. Reduce Non-Elective Contributions
11. FORFEITURES OF MATCHING CONTRIBUTIONS SHALL BE REALLOCATED to
participants:
( ) a. In the same manner as Non-Elective Contributions
( ) b. In proportion to each participant's Compensation
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<PAGE> 19
( ) c. In proportion to Matching Contributions
( ) d. In proportion to Elective Contributions
(x) e. Not applicable. Forfeitures are applied to reduce
contributions.
12. REQUIREMENT TO SHARE IN ALLOCATION OF FORFEITURES - In order to
share in the allocation of Forfeitures which supplement rather than
reduce other contributions, a Participant: (Select-all applicable)
( ) a. Must be eligible to receive an allocation of the
respective type of contribution, i.e. Matching or
Non-elective
(x) b. Not applicable. Forfeitures reduce contributions.
13. RESTORATION OF FORFEITURES - If a Participant is entitled to a
restoration of a forfeiture, the amount to be restored shall be
restored by:
( ) a. An additional contribution by the Employer
specifically allocated to the Participant's Account.
(x) b. Allocating other forfeitures arising in the year of
restoration to the Participant's Account to the
extent thereof and an additional contribution by the
Employer specifically allocated to the Participant's
Account to the extent that allocable forfeitures are
insufficient.
F. CODA LIMITATION PROVISIONS
1. ACTUAL DEFERRAL PERCENTAGES - Qualified Non-Elective Contributions
may be taken into account for purposes of calculating the
ADP-Actual Deferral Percentages. For purposes of the ADP test in
Section 2.7.1, the amount taken into account shall be:
( ) a. All Qualified Non-Elective Contributions.
(x) b. The Qualified Non-Elective Contributions that are
needed to meet the ADP test.
2. AVERAGE CONTRIBUTION PERCENTAGE - The amount of Elective Deferrals
and Qualified Non-Elective Contributions taken into account as
contribution percentage amounts for the purpose of calculating the
ACP-Average Contribution Percentage, subject to such other
requirements as may be prescribed by the Secretary of the Treasury,
shall be:
* * *
For elective deferrals:
( ) a. All such Elective Deferrals.
(x) b. Only those Elective Deferrals that are needed to meet
the Average Contribution Percentage test.
( ) c. Elective Deferrals are not to be included in the ACP
test.
( ) d. Not applicable.
For Qualified Non-Elective Contributions:
( ) e. All such Qualified Non-Elective contributions.
(x) f. Only those Qualified Non-Elective Contributions that
are needed to meet the Average Contribution
Percentage test.
19
<PAGE> 20
( ) g. Qualified Non-Elective Contributions are not to be
included in the ACP test.
( ) h. Not applicable.
3. EXCESS AGGREGATE CONTRIBUTIONS Forfeitures of Excess Aggregate
Contributions pursuant to Section 2.7.7 shall be:
(X) a. Applied to reduce Employer contributions.
( ) b. Allocated, after all other forfeitures under the
Plan, to each Participant's Matching Contribution
Account in the ratio which each Participant's
Compensation for the Plan Year bears to the total
Compensation of all Participants for the Plan Year.
Such forfeitures will not be allocated to the Account
of any Highly Compensated Employee.
G. DISTRIBUTION PROVISIONS
1. FORM OF DISTRIBUTIONS Section 2.5.2 provides that the
Employer may elect to permit Plan distributions to be made in
the form of: (Select all applicable)
(x) a. Lump sum without regard to amount.
( ) b. Lump sum but not to exceed $ .
( ) c. Installments over ____ years payable:
(Select one or more)
( ) c. 1. annually
( ) c. 2. quarterly
( ) c. 3. monthly
( ) d. Installments over a period of years certain
selected by the Participant that is less than
the life of the Participant payable (Select
one or more.)
( ) d.1. annually
( ) d.2. quarterly
( ) d.3. monthly
( ) e. An annuity for not more than ____
( ) f. An annuity for the life of: (Select one or
more)
( ) f.1. the Participant.
( ) f.2. the Participant and spouse
( ) f.3. the Participant and a designated
beneficiary
( ) g. An annuity for ____ years certain and
thereafter for the life of: (Select one or
more)
( ) g.1. the Participant
( ) g.2. the Participant and spouse
( ) g.3. the Participant and a designated
beneficiary
( ) h. An annuity for a period certain selected by
the Participant that is less than the life
of: (Select one or more)
( ) h. 1. the Participant
( ) h. 2. the Participant and spouse
( ) h. 3. the Participant and a designated
beneficiary
NOTE Any number of options may be selected. Once selected, however, any
option may not thereafter be eliminated.
20
<PAGE> 21
If an annuity option of life or longer is selected Qualified Joint
and Survivor Annuity provisions are required.
2. SURVIVOR ANNUITY PERCENTAGE - If a Joint and Survivor Annuity is
payable, Section 1.2.37 provides that the normal survivor annuity
is 50% of the amount payable during the joint lives of the
participant and spouse, unless the Employer elects a different
percentage (Select one):
( ) a. Plan Provision - 50%
( ) b. Other Percentage - _% (Not less than 50% nor more
than 100%)
( ) c. Other Percentage selected by the Participant (Not
less than 50% or more than 100%
3. TIME OF DISTRIBUTION - Section 2.5.l (b) provides that
distributions are deferred to Participants who resign or are
discharged prior to retirement until the retirement date unless
the employer elects to permit distributions in advance of such
date.
( ) a. Plan Provision without advance distribution
election.
(x) b. Distributions may be made at the Participant's
election within a reasonable period following the
Distribution Date.
4. DISTRIBUTION DATE - Section 2.4.5 provides that, subject to the
necessity of obtaining the consent of a Participant and spouse,
for the purposes of determining the amount to be distributed, the
Distribution Date:
For a Participant who is not fully vested, is
( ) a. The Anniversary Date coinciding with or following
the date of termination.
( ) b. The Valuation Date coinciding with or following the
date of termination
(x ) c. As soon as practical but prior to the Anniversary
Date coinciding with or following the date of
termination, based on the preceding Valuation Date.
( ) d. the ( ) Valuation Date ( ) Anniversary Date following
consecutive Breaks in Service.
( ) e. The Participant's Normal or Early Retirement Date.
For a Participant who is fully vested but who terminates employment prior to
death, total and permanent disability or retirement at his retirement date
is:
( ) a. The Anniversary Date coinciding with or following
the date of termination.
( ) b. The Valuation Date coinciding with or following the
date of termination.
(x) c. As soon as practical but prior to the Anniversary
Date following the date of termination, based upon
the preceding Valuation Date.
( ) d. The Participant's Normal or Early Retirement Date
For a Participant who terminates employment as a result of death, total and
permanent disability or retirement at his retirement date, is:
( ) a. The Anniversary Date coinciding with or following
the date of termination.
21
<PAGE> 22
( ) b. The Valuation Date coinciding with or following the
date of termination.
(x) c. As soon as practical but prior to the Anniversary
Date following the date of termination, based upon
the preceding Valuation Date.
In the case of a Participant's interest in an Elective Account, Voluntary
Account or Segregated Account attributable to a rollover contribution from
another plan, notwithstanding the foregoing, the Distribution Date, is:
( ) a. Not applicable - The Distribution Date is determined
in the manner indicated above for the fully vested
Participants.
( ) b. The Anniversary Date coinciding with or following the
date of termination.
( ) c. The Valuation Date coinciding with or following the
date of termination.
(x) d. As soon as practical but prior to the Anniversary
Date following the date of termination, based upon
the preceding Valuation Date.
5. HARDSHIP DISTRIBUTIONS - Section 2.5.5 provides that an Employer
may permit distributions to Participants while employed in the
event of financial hardship as specified in the Plan:
(x) a. Hardship distributions are permitted.
( ) b. Hardship distributions are not permitted.
Hardship Distributions may be made from a Participants Account as elected below
in c and d, provided that Hardship Distributions of earnings on elective
Deferrals may only be made on such earnings credited to the Participant's
account as of the end of the last Plan Year ending before July 1, 1989.
Therefore, subject to such limitation, Hardship Distributions may be taken from:
(x) c. all of Participant's Accounts.
( ) d. only the Participant's Account balances
attributable to the following accounts:
( ) d.1. Employer Account
( ) d.2. Qualified Non-Elective Contribution
Account
( ) d.3. Elective Contribution Account
( ) d.4. Matching Account
( ) d.5. Segregated Account (attributable to
a rollover)
( ) d.6. Voluntary Account
6. IN SERVICE DISTRIBUTIONS - Section 2.5.6 provides that an
Employer may permit distributions to fully vested Participants
over the age of 59-1/2 prior to termination of employment if the
amounts withdrawn have been allocated to the Participant for two
(2) or more years or the Participant has been a Participant for
at least five (5) years. (Select all applicable)
(x) a. Plan Provision.
( ) b. Require that amounts have been allocated for _ years.
(Must be at least 2).
( ) c. Require participation for at least ___ years. (Must
be at least 5).
(x) d. In Service Distributions are permitted upon reaching
Normal Retirement Date.
(x) e. In Service Distribution are permitted for amounts
attributable to a rollover from another plan
regardless of age or periods of participation.
22
<PAGE> 23
( ) f. In Service Distributions are not permitted.
7. QUALIFIED DOMESTIC RELATIONS ORDERS - Section 3.12.9 provides that the
Employer may elect to permit distributions to an alternate payee
pursuant to the terms of a qualified domestic relations order even if
the Participant continues to be employed. (Select one)
( ) a. Distributions to an alternate payee are not permitted
while the Participant continues to be employed.
(x) b. Distributions to an alternate payee are permitted
while the Participant continues to be employed.
H. OTHER ADMINISTRATIVE PROVISIONS
1. EARNINGS - Section 3.1.2 permits the Employer to specify the manner in
which earnings are allocated to Participants who receive distributions
on any date other than a Valuation Date. Select any of the following:
(x) a. Earnings will be credited solely as of the
immediately preceding Valuation Date.
( ) b. Actual earnings will be credited to the date of
distribution.
( ) c. Earnings will be credited solely as of the
immediately preceding Valuation Date if distribution
is within __ days of such Valuation Date and will be
credited to date of distribution otherwise.
( ) d. Earnings will be credited to the date of distribution
based upon an estimate of earnings equal to __%
annually.
( ) e. Earnings will be credited to the date of distribution
based upon an estimate of earnings equal to the
average rate of earnings during the preceding.
e.1. Valuation Period.
e.2. Plan Year.
e.3. Valuation Periods.
2. LOANS - SECTION 3.7.1 provides that the Employer may elect to permit
loans to Participants and Beneficiaries in accordance with a
participant loan program adopted by the Trustee.
(x) a. Loans are permitted.
( ) b. Loans are not permitted.
3. ROLLOVERS - Section 3.11.3 authorizes the Employer to permit the
transfer of interests in other qualified plans to the Plan.
( ) a. Rollover contributions are not permitted.
( ) b. Rollover contributions are permitted only from other
plans of the Employer.
( ) c. Rollover contributions are permitted only by
Employees who have satisfied the conditions for
participation.
(x) d. Rollover contributions are permitted from any
employee even if not otherwise eligible to be a
Participant.
4. INVESTMENT CONTROL - Section 3.6.5 provides that the Employer may elect
to permit Participants to control the investment of their Accounts.
23
<PAGE> 24
( ) a. Participants may not control their investments.
( ) b. Participants may control the investment of their
Accounts if fully vested in the Account.
( ) c. Participants may control the investment of their
Accounts to the extent vested.
(x) d. Participants may control their investments without
regard to their vested interest.
( ) e. Participants may control their investments solely
with respect to amounts attributable to: (Select all
applicable).
( ) e.1. Non-Elective Contributions
( ) e.2. Qualified Non-Elective Contributions
( ) e.3. Elective Contributions
( ) e.4. Matching Contributions
( ) e.5. Voluntary Contributions
( ) e.6. Amounts rolled over and held in a
Segregated Account
5. TOP HEAVY ASSUMPTIONS - (This question applies only if the Employer has
a Defined Benefit plan.) The interest rate used to establish the
Present Value of Accrued Benefits in order to calculate the top heavy
ratio under IRC Section 416 shall be ___% and the mortality tables used
shall be _______.
6. VALUATION DATE - For purposes of computing the top-heavy ratio, the
Valuation Date is (Select one):
( ) a. the first day of Plan Year.
(x) b. the last day of the Plan Year.
( ) c. Other - Specify. ________/_______ (Must be at least
annually)
7. SINGLE PLAN MINIMUM TOP-HEAVY ALLOCATION - For purposes of minimum
top-heavy allocations, contributions and forfeitures equal to the
following percentage of each non-Key Employee's compensation will be
allocated to the Employee's account when the Plan is top-heavy (Select
one):
(x) a. 3% or the highest percentage allocated to any Key Employee
if less.
( ) b. _% (Must be at least 3).
8. MULTIPLE PLANS PROVISION - The Employer which maintains or ever
maintained another qualified defined benefit plan or welfare benefit
fund or individual medical account in which any participant in the Plan
is, was or could become a participant adds the following optional
provision which it deems necessary to satisfy Section 415 or 416 of the
Code because of the required aggregation of multiple plans: (Select
one)
(x) a. Not applicable (No other plan or other plan
terminated prior to the Effective Date of this
Adoption Agreement).
( ) b. A minimum contribution allocation of 5% of each
Non-Key Participant's total compensation shall be
provided in a defined contribution plan of the
Employer.
( ) c. A minimum contribution allocation of 7.5% of each
Non-Key Participant's total compensation shall be
provided in a defined contribution plan of the
Employer.
24
<PAGE> 25
( ) d. A minimum benefit of ________ (must be at least the
lesser of 2% times years of service or 20%) of each
Non-Key Participant's total compensation shall be
provided in a defined benefit plan of the Employer.
( ) e. A minimum benefit of _____ (must be the lesser of 2%
times years of service or 20%) of each Non-Key
Participant's total compensation shall be provided in
a defined benefit plan of the Employer but offset by
the amount contributed on such participant's behalf
under any defined contribution plan of the Employer.
( ) f. Other - Specify.
NOTE: The method selected must preclude Employer discretion and
the Employer must obtain a determination letter in order to
continue reliance on the Plan's qualified status.
9. MULTIPLE DEFINED CONTRIBUTION PLANS - If the Participant is covered
under another qualified defined contribution plan maintained by the
Employer, other than a master or prototype plan: (Select one)
(x) a. Not applicable.
( ) b. The provisions of this Plan limiting annual additions
will apply as if the other plan is a master or
prototype plan.
( ) c. Other - Specify.
NOTE: Specify the method under which the plans will limit total
annual additions to the maximum permissible amount, and will
properly reduce any excess amounts in a manner that
precludes Employer discretion.
10. TOP HEAVY DUPLICATIONS - The Employer who maintains two or more Defined
Contribution plans makes the following election:
(x) a. Not applicable.
( ) b. A minimum non-integrated contribution of 3% of each
Non-Key Participant's Compensation shall be provided
by:
( ) b.1. this Plan.
( ) b.2. the following defined contribution plan:
( ) c. Other - Specify.
NOTE: The method selected must preclude Employer discretion and
avoid inadvertent omissions, including any adjustments
required under Code Section 415(e) - The Employer must
obtain a determination letter in order to continue reliance
on the Plan's qualified status. If the plan is to be paired
with another defined contribution plan:
(a) if the plans benefit the same participants, one of the
paired plans must provide the top-heavy contribution.
(b) if the plans do not benefit the same participants, then
each plan must make its own top-heavy contributions.
25
<PAGE> 26
11. ANNUAL ADDITION LIMITATION - If a Participant is or has ever been a
participant in a defined benefit pension plan maintained by the
Employer, Section 3.2.1(c) provides that Annual Additions shall be
limited.
(x) a. Not applicable
( ) b. The contribution to the Plan allocable to the
Participant shall be reduced so that the limitations are
not exceeded.
( ) c. Other - Specify
NOTE: Specify the method under which the plans will limit total
additions to the maximum permissible amount, and will properly
reduce any excess amounts in a manner that precludes employer
discretion.
12. SECTION 415 COMPENSATION DEFINITION. For purposes of calculating an
Employee's compensation pursuant to Section 3.2.1(h), relating to
limitations on contributions and benefits, Compensation means all of
each Participant's
(x) a. Wages as computed for Wages, Tips, and Other
Compensation Box on Form W-2.
( ) b. Section 3401(a) wages.
( ) c. Section 415 safe harbor compensation.
13. PAIRED PLAN - Indicate whether the Plan is to be paired with another
ABR Benefits Services, Inc. Regional Prototype Plan.
(x) a. No or not applicable
( ) b. Yes. Paired with:
Plan Name _______________________
Three Digit Plan Number ___________
The name, address and telephone number of the Plan Sponsor is:
ABR Benefits Services, Inc.
34125 U.S Highway 19 North
Palm Harbor, FL 34684
(800)272-9605
Applicable requirements mandate that the use of this Prototype Document be
registered by the Plan Sponsor with the Internal Revenue Service. Unregistered
use may cause the Plan to become disqualified because it may not be maintained
as required by law.
The Plan Sponsor will inform the Employer of any amendments made to the Plan or
of the discontinuance or abandonment of the Plan.
NOTE: An employer may rely on the notification letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is
qualified under Section 401 of the Internal Revenue Code unless the
Employer has ever maintained or who later adopts another plan in
addition to the Plan (including a welfare benefit fund which provides
26
<PAGE> 27
post-retirement medical benefits allocated to separate accounts for key
employees or an individual medical account plan) other than ABR
Benefits Services, Inc. Regional paired plans. If the Employer who
adopts or maintains multiple plans wishes to obtain reliance that the
plans are qualified, application for a determination letter should be
made to the appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with the ABR Benefits
Services, Inc. Regional Prototype Defined Contribution Plan and Trust, Revised
05/06/92.
* * *
The Employer and Trustee hereby adopt the Plan and Trust as evidenced by the
foregoing Adoption Agreement on this 1st day of June 1998.
Employer: Trustee:
Anthra Pharmaceuticals, Inc.
/s/ Michael C. Walker
- --------------------------- -------------------------
Officer Michael C. Walker
Trustee
/s/ Karen Krumeich
--------------------------
Karen Krumeich
Trustee
/s/ Rosella M. Lucia
--------------------------
Rosella M. Lucia
Trustee
27
<PAGE> 1
Exhibit 10.19
OPTION AGREEMENT
THIS OPTION AGREEMENT is entered into this 6th day of July, 1998, by
and between Leiras Oy, a Finnish corporation with its offices at Pansiontie 47,
FIN-20101 Turku, Finland (hereinafter referred to as "Leiras"), Berlex
Laboratories, Inc., a Delaware corporation with offices at 340 Changebridge
Road, Montville, New Jersey 07045-1000 (hereinafter referred to as "Berlex"),
and Anthra Pharmaceuticals, Inc., a Delaware corporation with its offices at 19
Carson Road, Princeton, New Jersey 08540 (hereinafter referred to as "Anthra").
W I T N E S S E T H:
WHEREAS, the parties hereto have signed a Term Sheet dated December
12, 1997 pursuant to which they agreed to enter into negotiations for the
development and marketing of dosage forms containing as the active ingredient
disodium clodronate in the United States of America; and
WHEREAS, pursuant thereto, among other things, the parties have
negotiated the terms of a Development Agreement and a Manufacturing Agreement
(each as hereinafter defined); and
WHEREAS, Anthra has requested additional time within which to
consider whether to enter into the Agreements (as hereinafter defined) ; and
WHEREAS, Leiras has agreed to grant Anthra an option to enter into
the Agreements, and Anthra and Berlex have agreed thereto, subject to and in
accordance with the terms hereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
1
<PAGE> 2
(a) "Development Agreement" shall mean the undated form of Development
and Commercialization Agreement among Leiras, Berlex and Anthra
identified as 4429/18/JKK, annexed hereto as Exhibit A and initialed
by the parties for purposes of further identification.
(b) "Manufacturing Agreement" shall mean the undated form of
Manufacturing Agreement between Leiras and Anthra identified as
4430/13/JKK, annexed hereto as Exhibit B, and initialed by the
parties for purposes of further identification.
(c) "Agreements" shall mean the Manufacturing Agreement and the
Development Agreement.
(d) "Pre-Clinical Studies", "FDA" and "NDA" as used in Section 4 hereof
and "Affiliate" and "Schering Group" as used in Section 7 hereof
shall have the meanings set forth in the Development Agreement.
2. Grant of Option
(a) For and in consideration of the nonrefundable sum of Two Hundred
Thousand U.S. Dollars (USD 200,000), paid by Anthra to Leiras by wire
transfer on the date hereof, Leiras hereby grants Anthra the option
to enter into the Agreements. Such option shall be exercisable by
written notice from Anthra to Leiras on or before 5 P.M. local time,
Helsinki, Finland, September 30, 1998, accompanied by wire transfer
payment to Leiras of Eight Hundred Thousand U.S. Dollars (USD
800,000), representing the balance of the portion of the
nonrefundable payment due under Section 5.1(a) of the Development
Agreement, it being agreed by the parties hereto that the foregoing
amount of Two Hundred Thousand U.S. Dollars (USD 200,000) shall be
credited toward the One Million U.S. Dollars (USD 1,000,000) due
under said Section 5.1(a) if, and only if, the option hereunder is
duly exercised. Upon the exercise of the option, Leiras, Anthra and
Berlex shall
2
<PAGE> 3
be bound by all of the terms and conditions of the Development
Agreement and Leiras and Anthra shall be bound by all of the terms
and conditions of the Manufacturing Agreement, in each case effective
as of the date of such exercise. The parties hereto shall be so bound
without further execution and delivery of the Agreements, but may,
for purposes of convenience, execute and deliver such respective
Agreements.
(b) In the event that the foregoing option is not exercised on or before
September 30, 1998, the option shall expire in its entirety, and no
party hereto shall have any obligation to any other party hereto
under the Agreements. The provisions of Sections 3, 4(c), 5, 6, 7, 8
and 9 of this Option Agreement shall survive such expiration.
3. Confidential Information
(a) Nondisclosure. Except to the extent permitted by this Section 3 or as
otherwise agreed by the parties in writing, the parties agree that,
at all times during the term of this Option Agreement and for thirty
(30) years and three (3) months thereafter, the party receiving
information hereunder (the "Receiving Party") shall keep completely
confidential, shall not publish or otherwise disclose and shall not
use directly or indirectly for any purpose other than in connection
with this Option Agreement and the Agreements any information
furnished to it by another party (the "Disclosing Party") pursuant to
this Option Agreement or otherwise relating to any transaction
contemplated hereby or by the Agreements, including information
heretofore furnished to it (the "Confidential Information"), except
to
3
<PAGE> 4
the extent that the Receiving Party can establish by competent proof
that such information:
(i) was already known to the Receiving Party, other than under
an obligation of confidentiality, at the time of disclosure
by the Disclosing Party, as evidenced by the Receiving
Party's prior written records;
(ii) was part of the public domain at the time of its disclosure
by the Disclosing Party;
(iii) became part of the public domain after its disclosure by
the Disclosing Party, other than through any act or
omission of the Receiving Party in breach of this
Agreement; or
(iv) was disclosed to the Receiving Party by a third party who
had no obligation not to disclose such information to
others.
(b) Authorized Disclosure. Each party may disclose Confidential
Information to the extent that such disclosure is:
(i) Made in response to a valid order of a court of competent
jurisdiction or other governmental body of a country or any
political subdivision thereof of competent jurisdiction;
provided, however , that the Receiving Party shall first
have given notice to the Disclosing Party and given the
Disclosing Party a reasonable opportunity to quash such
order and to obtain a protective order requiring that the
Confidential Information and/or documents that are the
subject of such order be held in confidence by such court
or agency or, if disclosed, be used only for the purposes
for which the order was issued; and provided further that
if a disclosure order
4
<PAGE> 5
is not quashed or a protective order is not obtained, the
Confidential Information disclosed in response to such
court or governmental order shall be limited to that
information which is legally required to be disclosed in
such response to such court or governmental order;
(ii) Otherwise required by law, in the opinion of legal counsel
to the Receiving Party as expressed in an opinion letter in
form and substance reasonably satisfactory to the
Disclosing Party, which shall be provided to the Disclosing
Party at least forty-eight (48) hours prior to the
Receiving Party's disclosure of the Confidential
Information pursuant to this Section 3(b);
(c) Public Announcements. No party hereto shall make any public
announcements regarding this Option Agreement or the Agreements or
the transactions contemplated hereby or thereby without the written
consent of the other parties; provided, however, that each party
shall be entitled to disclose information to the extent required to
comply with applicable securities laws, including those relating to
initial public offerings. The disclosing party shall be solely
responsible for the accuracy and completeness of any such disclosure.
Except as required by law, no party to this Option Agreement shall
use the name of another party or any of its Affiliates or parent
companies, including, without limitation, Schering AG in any public
announcement, press release or other public document without the
prior written consent of such other party.
(d) Notification. The Receiving Party shall notify the Disclosing Party
immediately, and cooperate with the Disclosing Party as the
Disclosing Party may reasonably
5
<PAGE> 6
request, upon the Receiving Party's discovery of any loss or
compromise of the Disclosing Party's Confidential Information.
(e) Remedies. Each Receiving Party agrees that the unauthorized use or
disclosure of any material Confidential Information by the Receiving
Party in violation of the provisions of this Section 3 will cause
severe and irreparable damage to the Disclosing Party. In the event
of any violation of this Section 3, the Receiving Party agrees that
the Disclosing Party shall be authorized and entitled to obtain from
any court of competent jurisdiction injunctive relief, whether
preliminary or permanent, as well as any other relief permitted by
applicable law. The Receiving Party agrees to waive any requirement
that the Disclosing Party post a bond as a condition for obtaining
any such relief.
4. Development Work
(a) Promptly following execution of the Option Agreement,
Anthra agrees to commence, and thereafter diligently
continue to conduct development activities contemplated
under Article 4 of the Development Agreement to the extent
necessary or appropriate as preparatory to the pre-NDA
meeting with the FDA contemplated under Section 4.7 of the
Development Agreement.
(b) Promptly following execution of this Option Agreement,
Leiras agrees to furnish Anthra with copies of its reports
of clinical and preclinical studies as contemplated under
Article 3.1 of the Development Agreement for purposes of
assisting Anthra in its preparation for the pre-NDA meeting
referred to in paragraph (a) hereof.
6
<PAGE> 7
(c) In the event the option under Section 2 of this Option
Agreement is not duly exercised in accordance with its
terms, then on or before October 5, 1998, Anthra shall, at
Anthra's sole cost and expense and without any compensation
from Leiras or Berlex: (i) return to Leiras all study
reports and any other Confidential Information furnished by
Leiras to Anthra, and (ii) provide Leiras with all
preparatory work undertaken by Anthra under paragraph (a)
hereof, and Anthra shall have no right to use such study
reports or other Confidential Information or preparatory
work.
5. Applicable Law
The validity, interpretation and implementation of this Agreement
shall be governed by the internal laws of the State of New York,
without regard to the choice of law provisions thereof.
6. Arbitration
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association to be held in New York, New York, and
judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
There shall be three arbitrators appointed. Anthra, on the one hand,
and Leiras, on the other hand, shall each appoint one such
arbitrator, and the two arbitrators shall appoint a third,
arbitrator; provided, however, if the controversy or claim is between
Berlex and Anthra, Berlex shall appoint an arbitrator in place of
Leiras. If, the party-appointed arbitrators cannot agree on the third
arbitrator, the third arbitrator shall be appointed in
7
<PAGE> 8
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. All proceedings under this Section 6 shall
be conducted in English in New York, New York, or at such other
location as the parties may agree. All arbitration rulings and awards
shall be final and binding on the parties. The losing party shall
bear the cost of conducting the arbitration, but each party shall
otherwise bear its own expenses thereof, including, without
limitation, its own legal fees.
7. Assignment
No party may assign any of its rights and obligations under this
Agreement without the prior written consent of the other parties,
except that Leiras or Berlex may assign its rights to another member
of the Schering Group.
8. Entire Agreement
This Agreement together with Exhibits A and B hereto constitutes the
entire agreement between the parties with respect to the subject
matter hereof, supersedes any prior expression of intent or
understanding relating hereto and may only be modified or amended by
a written instrument signed by the authorized representatives of the
parties.
9. Notices
All notices given by a party to the other shall be in writing in
English and sent by courier service delivered letter, or by
facsimile, cable, telex or telefax (copies of which are to be
subsequently forwarded as confirmation by courier service delivered
letter), to the other party's address as indicated below or any other
address notified in lieu thereof. All notices shall be effective upon
receipt.
Leiras
8
<PAGE> 9
To: Leiras Oy
Pansiontie 47
P.O. Box 415
Fin-20101 Turku
Finland
Attention: Legal Department
Telecopier No.: 011 358 2 333 2465
Anthra
To: Anthra Pharmaceuticals, Inc.
19 Carson Road
Princeton, New Jersey 08540
Attention: Michael Walker, CEO
Telecopier No.: 1-609-924-3875
Anthra
To: Anthra Pharmaceuticals, Inc.
19 Carson Road
Princeton, New Jersey 08540
Attention: Michael Walker, CEO
Telecopier No.: 1-609-924-3875
Berlex
To: Berlex Laboratories, Inc.
340 Changebridge Road
Montville, New Jersey 07045-1000
Attention: Legal Department
Telecopier No.: 1-973-276-2005
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the date
first above written.
LEIRAS OY
By:/s/ Bernard Schefter
----------------------------------
Name: Bernard Schefter
Title: President
By:/s/ Timo Lappalainen
----------------------------------
Name: Timo Lappalainen
Title: Vice President
9
<PAGE> 10
BERLEX LABORATORIES, INC.
By: /s/ John Nicholson
----------------------------------
Name: John Nicholson
Title: Treasurer
ANTHRA PHARMACEUTICALS, INC.
By: /s/ Michael Walker
----------------------------------
Name: Michael Walker
Title: President
10
<PAGE> 11
EXHIBIT A
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
among
LEIRAS OY,
BERLEX LABORATORIES, INC.
and
ANTHRA PHARMACEUTICALS, INC.
Dated: ____________________, 1998
<PAGE> 12
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the Development
Agreement is entered into this ____ day of _____________, 1998, by and between
Leiras Oy, a Finnish corporation with its offices at Pansiontie 47, FIN-20101
Turku, Finland (hereinafter referred to as "Leiras"), Berlex Laboratories, Inc.,
a Delaware corporation with offices at 340 Changebridge Road, Montville, New
Jersey 07045-1000 (hereinafter referred to as "Berlex"), and Anthra
Pharmaceuticals, Inc., a Delaware corporation with its offices at 19 Carson
Road, Princeton, New Jersey 08540 (hereinafter referred to as "Anthra").
W I T N E S S E T H:
WHEREAS, the parties hereto have signed a Term Sheet dated December
12, 1997 pursuant to which they have agreed to enter into negotiations for the
development and marketing of dosage forms containing as the active ingredient
disodium clodronate in the United States of America; and
WHEREAS, pursuant thereto, among other things, the parties have
agreed to negotiate a Development Agreement; and
WHEREAS, the parties have agreed to the terms and conditions as
further hereinafter set forth, and Leiras and Anthra are simultaneously herewith
entering into a Manufacturing Agreement as contemplated by the Term Sheet.
NOW, THEREFORE, the parties hereto hereby agree as follows:
10. DEFINITIONS
The following terms used in this Development Agreement shall have the
following meanings:
<PAGE> 13
(a) "Additional Studies" shall have the meaning set forth in
Section 4.7.
(b) "Affiliate" of a Person shall mean any other Person which,
directly or indirectly, is Controlled by, or is under
common Control with, such Person.
(c) "Applicable Rate" shall have the meaning set forth in
Section 6.1 (e)(iii)
(d) "Clinical Studies" shall have the meaning set forth in
Section 3.1.
(e) "CMC Data" shall mean all information contained in, and
data supporting, the CMC Section of all INDs, NDAs or SNDAs
covering the Product for the Indications.
(f) "CMC Section" shall mean the Chemistry, Manufacturing and
Control and Facilities section of the IND, NDA or SNDA, as
the case may be, for the Product for the H-Indication or
O-Indication.
(g) "Control" shall mean the power to direct or cause the
direction of the management or policies of a Person,
whether through the ownership of voting securities, by
contract, resolution, regulation or otherwise.
(h) "Effective Date" shall mean the date first above written.
(i) "FDA" shall mean the Food and Drug Administration of the
U.S. Department of Health and Human Services, and any
successor agency having substantially the same functions.
(j) "Force Majeure" shall have the meaning set forth in Section
16.1.
(k) "H-Indication" shall mean the treatment of hypercalcemia in
humans due to malignancy.
(l) "IAS" shall mean the international accounting standards
promulgated by I the International Accounting Standards
Committee.
<PAGE> 14
(m) "Improvements" shall mean all discoveries, formulae, data,
inventions, know-how and trade secrets, procedures,
devices, technology, formulations, and other intellectual
property covering any enhancement in the formulation,
ingredients, presentation, means of delivery, dosage or
packaging of the Product or covering a new indication or
application for the Product. In no event shall
"Improvements" include any methods or processes or other
means of manufacture of the Product or any part thereof.
(n) "IND" shall mean the Investigational New Drug Application
number IND 44.160 filed with the FDA by Leiras relating to
the Product.
(o) "Indications" shall mean the H-Indication and the
O-Indication in humans.
(p) "Launch" shall mean the first commercial sale of the
Product in the Territory following the approval of an NDA
for the O-Indication or the H-Indication.
(q) "Manufacturing Agreement" shall mean the Manufacturing
Agreement of even date herewith between Leiras and Anthra.
(r) "Market" or "Marketing" shall mean all programs and
activities relating to the promotion and sale of the
Product in the Territory, including but not limited to,
advertising, seminars, symposia, training and education, as
well as detailing, selling, contracting for sale of, and
distributing the Product.
(s) "Minimum Royalty" shall mean with respect to each Royalty
Period (or part thereof) for which Berlex is obligated to
pay Anthra a royalty under Section 6.1(e)(iii) below, the
product of (a) fifty percent (50%), and (b) the Applicable
Rate and (c) the Net Sales for such Royalty Period as
projected in a written determination made by an independent
third party mutually selected by Berlex
<PAGE> 15
and Anthra, within one year prior to the anticipated date
of Launch. In the event, however, that there is any
material change in any assumption relied upon by such
independent third party in projecting the Net Sales for any
Royalty Period(s), the independent third party, or, in his
absence or unavailability, a successor to be mutually
selected by Berlex and Anthra, shall revise the Net Sales
for such Royalty Period(s) accordingly. Without limiting
the foregoing, in the event that the FDA-approved labeling
differs materially from the labeling initially proposed by
Anthra to the FDA, a material change in the assumptions
relied on by the independent third party shall be deemed to
have occurred.
(t) "NDA" shall mean a New Drug Application to the FDA for the
Product.
(u) "Net Sales" shall mean the amount invoiced for the Product
per unit by (a) Anthra and, if it sublicenses the selling
rights, its sublicensees (hereinafter "the selling party")
and (b) in the event that Berlex exercises the Option,
Bedex and, if it sublicenses the selling rights, its
sublicensees (hereinafter "the selling party") to third
parties in the Territory, less reasonable and customary
deductions applicable for (i) transportation charges and
charges such as insurance, relating thereto paid by the
selling party; (ii) sales and excise taxes or customs
duties paid by the selling party and any other governmental
charge imposed upon the sale of the product and paid by the
selling party; (iii) distributors' discounts, rebates or
allowances actually granted, allowed or incurred; (iv)
quantity discounts, cash discounts or chargebacks actually
granted, allowed or incurred in the ordinary course of
business in connection with the sale of the Product; (v)
allowances or credits to customers, not in excess of the
selling price of the product, on account
<PAGE> 16
of governmental requirements, rejection, outdating, recalls
or return of the product, and (vi) costs of customer
programs such as cost-effectiveness or patient assistance
programs designed to aid in patient compliance to maintain
medication schedules, for the purpose of securing managed
care contracts (to the extent that such programs directly
result in incremental the Product sales); provided,
however, that any deduction pursuant to clause (vi) shall
be prorated over the term of the relevant contracts.
Notwithstanding anything to the contrary contained in the
foregoing sentence, Net Sales to customers other than U.S.
governmental entities and state programs for indigent
patients shall be deemed in the aggregate to be not less
than eighty percent (80%) of the selling party's published
wholesale price multiplied by the number of units of the
Product sold to customers in the Territory, less deductions
for freight, postage, shipping and insurance to the extent
included in such wholesale price.
For the purpose of calculating a selling party's Net Sales, the
parties recognize that (a) a selling party's customers may include
persons in the chain of commerce who enter into agreements with a
selling party as to price even though title to the product does not
pass directly from a selling party to such customers, and even though
payment for such Product is not made by such customers directly to a
selling party and (b) in such cases chargebacks listed above and paid
by a selling party to or through a third party (such as a wholesaler)
can be deducted by a selling party from gross revenue in order to
calculate Net Sales. Any deductions listed above, which involve a
payment by a selling party shall be taken as a deduction against
aggregate sales for the period in which the payment is made. Sale of
the Product between a party and its sublicensees solely for research
or
<PAGE> 17
clinical testing purposes shall be excluded from the computation of
Net Sales. Net Sales will be accounted for in accordance with IAS.
(v) "O-Indication" shall mean the treatment of osteolysis
(osteolytic bone metastases) in humans.
(w) "OP-Indication" shall mean the prevention of osteolysis
(osteolytic bone metastases) in humans.
(x) "Option" shall have the meaning set forth in Section
6.1(a).
(y) "Option Period" shall have the meaning set forth in Section
6.1(b).
(z) "Person" shall mean an individual, sole proprietorship,
partnership, limited partnership, limited liability
partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated
association, joint venture or other similar entity or
organization, including, without limitation, a government
or political subdivision, department or agency of a
government.
(aa) "Pre-Clinical Studies" shall have the meaning set forth in
Section 4.7.
(bb) "Product" shall mean disodium clodronate in the finished
dosage forms listed and conforming to the Specifications
which are set forth in Exhibit 1.28.
(cc) "Royalty Period" shall mean each twelve (12) consecutive
month period commencing on the date of Launch and each
anniversary thereof.
(dd) "Schering Group" shall mean Schering AG and its Affiliates,
including, but not limited to, Leiras and Berlex.
(ee) "Specifications" shall mean the specifications for the
Product as set forth in Exhibit 1.28 hereto.
(ff) "SNDA" shall mean a Supplemental New Drug Application for
the Product.
<PAGE> 18
(gg) "Technology" shall mean any information, technical
knowledge, expertise, practice, inventions, procedures,
formulae, trade secrets, analytical methodology, stability
and other data, toxicological information, and know-how in
tangible or intangible form, whether patented (including
the Patents referred to in Section 13.1 hereof), patentable
or otherwise, other than the Pre-Clinical Studies and
Clinical Studies, in which any member of the Schering Group
has an ownership or a license, and which relates to
preclinical, CMC and clinical experience regarding the
Product and which is pertinent to the NDA or the SNDA for
the Indications. In no event shall Technology include any
methods or processes or other means of manufacture of the
Product or any part thereof.
(hh) "Territory" shall mean the United States of America, and
its territories and possessions and the Commonwealth of
Puerto Rico.
(ii) "Trademark" shall mean the trademark BONEFOS(R), as further
described on Exhibit 1.35.
(jj) "Transfer Date" shall mean the date of the transfer and
assignment of Anthra's rights to Berlex under Section 6.1
(e) of this Agreement in the event Berlex exercises its
Option.
11. RIGHTS AND LICENSES
(a) Subject to the terms and conditions of this Agreement,
including without limitation, Article 6, Leiras hereby
grants to Anthra a perpetual exclusive license under the
Technology to develop and Market, sell and distribute the
Product in the Territory for the H-Indication, the
O-Indication and such other indications as the parties may
agree, and a non-exclusive royalty-free license to use the
Clinical
<PAGE> 19
Studies, Pre-Clinical Studies, and CMC Data solely for the
purpose of preparing, securing approval of, and maintaining
the NDA and SNDA for the Product for the Indications, and
such other indications as the parties may agree, and for
Marketing the Product in the Territory. The license granted
to Anthra hereunder is limited to the Product which has
been purchased from Leiras under the Manufacturing
Agreement, or purchased by Anthra from (i) a Second Source
to the extent permitted under Section 11.1 of the
Manufacturing Agreement or (ii) under the terms of the
license referred to in Section 15.6 of the Manufacturing
Agreement following termination of the Manufacturing
Agreement as provided in said Section 15.6. In the event
that Anthra wishes to develop the Product in the Territory
for any additional indications (other than the oncology
indications), Anthra shall obtain Leiras' prior written
consent for such development on terms to be negotiated
between Leiras and Anthra.
(ii) The license granted hereunder includes the right
to sublicense distribution, Marketing and sales
rights to any entity that does not, and whose
parent company and Affiliates do not, Market,
sell or distribute any product competing with the
Product in the Territory, provided however that,
subject to Section 6.1(g)(4), in the event Berlex
exercises the Option, this Section 2.1(b) shall
not apply to Berlex, any of its Affiliates, or
any sublicensees.
(iii) Any sublicense under Section 2.1(b) shall be
subject to all of the terms and conditions of
this Development Agreement.
<PAGE> 20
(b) Anthra expressly acknowledges and agrees that, other than
the rights and licenses granted under this Development
Agreement, it does not hereby acquire and has no right or
claim hereunder to any other rights in, or to the use of,
other trademarks, patents or other industrial property
rights or technical knowledge owned, used or adopted by
Leiras. Without limitation on the foregoing, no right or
license to manufacture the Product is granted to Anthra
hereunder.
12. TECHNICAL DOCUMENTATION
(a) Leiras shall provide Anthra, within thirty (30) days after
the Effective Date, at Leiras' expense, with a copy of (i)
all reports of clinical studies which it has conducted with
respect to the Product, as described on Exhibit 3.1 hereto
(the "Clinical Studies"), and (ii) all reports of
preclinical studies as described on Exhibit 4.7 (the
"Pre-Clinical Studies"). In addition, Leiras shall provide
Anthra, in the form available and in the possession of
Leiras or any member of Schering Group, within thirty (30)
days after notice from Anthra, with a copy of (x) such CMC
Data as Anthra may specify and (y) such Technology as
Anthra may reasonably request in connection with
preparation or securing approval of, and maintenance of,
the NDA or SNDA for the Product for the Indications. All of
the CMC Data and other Technology as available at Leiras
shall be made available to Anthra for audit and review.
Leiras represents and warrants to Anthra that Leiras has
access to all such Technology, and has the authority to
give and the power to perform the provisions of this
Article 3 set forth above.
(b) Due Diligence. Leiras acknowledges the receipt of the list
in Exhibit 3.2 on which Anthra has outlined certain
practices. Leiras agrees to consult with Anthra
<PAGE> 21
and to consider the items listed on such Exhibit, but
implementation thereof shall be in Leiras' sole discretion,
subject however to compliance with Articles 4.12 and 11.2
of this Development Agreement.
13. REGULATORY APPROVALS
(a) Anthra shall conduct or cause to be conducted, at its
expense, all clinical trials, studies or other similar
development activities required in order to prepare an NDA
or SNDA, as the case may be, for the Product for the
H-Indication and the O-Indication.
(b) Anthra shall obtain from Leiras, and Leiras shall supply to
Anthra, all clinical supplies of the Product required by
Anthra at any time prior to approval of the NDA and SNDA
for the Indications. Anthra shall pay Leiras $3.00 for each
vial and $0.20 for each capsule of Product, in
fully-packaged form. In the event that Berlex shall
exercise the Option, then Berlex shall reimburse Anthra,
within thirty (30) business days thereafter, for the
aggregate cost of such clinical supplies.
(c) Nothing contained herein shall prevent Leiras itself from
conducting such additional clinical trials as it may
consider necessary or appropriate, provided however that
Leiras agrees (i) not to conduct any company initiated
trials for the Product in the Territory until Anthra has
filed an NDA for one of the Indications, and (ii) to
conduct company initiated trials only relating to the first
Indication so filed until the SNDA for the second
Indication has been filed, provided further that such
restrictions shall not apply if Leiras obtains Anthra's
prior consent, which Anthra agrees not to unreasonably
withhold. Once the NDA and SNDA for both
<PAGE> 22
Indications have been filed, but in any case no later than March 31,
2004, no further consent shall be required.
(d) Anthra shall supply free of charge to Leiras all data
arising from the clinical trials referred to in Section
4.1, including, without limitation, all results obtained,
for use in the manner set forth in Section 4.11.
(e) Leiras shall transfer ownership of the IND to Anthra within
thirty (30) days after the Effective Date.
(f) Subject to this Article 4, Anthra shall prepare and file an
NDA, in its own name, for the H-Indication or the
O-Indication, and prepare and file an SNDA, in its own
name, for the other of the Indications. Anthra shall
immediately notify Leiras and Bedex in writing upon its
submission to the FDA of an NDA or SNDA for either of the
Indications and shall immediately notify Leiras and Bedex
of FDA acceptance for filing of such NDA or SNDA as well as
of the approval of such NDA or SNDA. Anthra shall use its
commercially reasonable efforts to secure, as soon as
commercially practicable and in any case no later than
March 31, 2005, FDA approval of an NDA or SNDA, as the case
may be, for both of the Indications. No later than December
31, 1998, Anthra shall submit to the FDA the protocol(s)
for the clinical trial(s) for the Indication for which an
SNDA shall be filed.
(g) Anthra shall prepare, and Leiras shall assist Anthra in
preparing, the pre-clinical section of the NDA and SNDA to
be filed by Anthra for the Product for the H-Indication and
the O-Indication. Anthra has had the full access and
opportunity to review such studies during the course of its
due diligence prior to the signing of this Agreement. In
the event that Anthra reasonably determines that
<PAGE> 23
any of the Pre-Clinical Studies do not meet the FDA Good
Laboratory Practices requirements, or are otherwise
deficient, then Anthra shall notify Leiras of the
additional preclinical studies ("Additional Studies") to be
performed in connection with the preparation of the NDA or
SNDA submission, as the case may be, within thirty days
after the pre-NDA meeting, or within thirty days after such
later time as the FDA may notify Anthra of additional
preclinical requirements, or upon making its determination
that there is a deficiency, as the case may be. In the
event that Leiras agrees to undertake the Additional
Studies, it shall so notify Anthra within thirty (30) days
after receipt of notice from Anthra of the Additional
Studies, and shall use commercially reasonable efforts to
complete them and prepare and provide to Anthra the
preclinical section of such NDA or SNDA not less than six
months prior to the NDA or SNDA submission date projected
by Anthra; provided, however, that if it is not practicable
to complete such work by such date, then Leiras agrees to
work diligently to complete such work as soon thereafter as
practicable. If Leiras shall fail to notify Anthra in
writing that Leiras has begun work on the Additional
Studies as soon as practicable, however, no later than
within three months after receipt of notice from Anthra of
such Additional Studies, then, upon written notice to
Leiras, Anthra may commission a contract research
organization to conduct such studies, in which case Anthra
shall prepare the preclinical section of such NDA or SNDA,
as the case may be, and Leiras shall have no obligation to
assist therewith. In the event that Leiras conducts such
Additional Studies, then Anthra shall semiannually, within
thirty (30) days after being invoiced therefor by Leiras,
<PAGE> 24
reimburse Leiras' costs of the Additional Studies and of
assisting Anthra in preparing the preclinical section of
the NDA or the SNDA, calculated in the manner referenced in
Section 5.5. In the event that Berlex exercises the Option,
then Berlex shall, within thirty (30) business days after
such exercise, reimburse Anthra for any payments made by
Anthra in connection with the Additional Studies. In such
event Anthra shall supply free of charge to Leiras and
Berlex all data arising from the Additional Studies
including without limitation, all results obtained. Leiras
and Bedex shall be entitled to use such results and other
data in the manner set forth in Section 4.11.
(h) Leiras shall prepare and submit to Anthra, at the expense
of Leiras, the CMC Sections of the NDA and SNDA to be filed
by Anthra for the Product for the H-Indication and the
O-Indication. As soon as reasonably practical after being
notified by the FDA at or after the pre-NDA meeting with
the FDA, Anthra shall provide Leiras with details of all
outstanding CMC issues and the anticipated date of filing
of the NDA or the SNDA, as the case may be. Leiras shall
undertake commercially reasonable efforts to provide Anthra
with the CMC section of the NDA or the SNDA, as the case
may be, six months before the projected filing date
thereof.
(i) The FDA filings will be made at Anthra's expense except as
otherwise provided in this Article 4.
(j) In the event that Berlex exercises the Option, Anthra shall
execute or have executed the relevant documents necessary
to transfer ownership of the IND and any other
investigational new drug application relating to the
Product, the NDA
<PAGE> 25
and any SNDA to Berlex within five (5) business days after
the grant of the Marketing authorization for the second
Indication to be approved, but in any case no later than
March 31, 2006; provided, however, that Anthra shall
transfer such approvals to Berlex upon any earlier
termination of this Development Agreement by Berlex or
Leiras in accordance with Sections 18.2, 18.3, 18.4, 18.5
or 18.7.
(k) During the term of this Development Agreement, Anthra shall
be the exclusive FDA contact with respect to the Product
until such time as Berlex shall exercise the Option and the
IND and any other investigational new drug application
relating to the Product, NDA and SNDA's are transferred to
Berlex, but Anthra shall in any case provide Berlex and
Leiras with a copy of all documentation and correspondence
submitted to, or received from, the FDA, including, without
limitation, the NDAs and SNDAs and any updated versions
thereof. With respect to submissions to the FDA, Anthra
shall be required to submit to Leiras and Bedex, on a
periodic basis, summaries of its submissions to FDA
relating to the Product. All clinical data submitted to
Leiras or Berlex shall be used, before the transfer of the
regulatory approvals pursuant to Section 4.10, solely for
the purpose of complying with the regulatory obligations of
the Schering Group, evaluating the Option, or on a
confidential basis with respect to development or
commercialization outside the Territory, provided however
that (x) after NDA approval for the first Indication all
such clinical data may be used freely by Leiras outside the
Territory but may not be disclosed by Leiras (except on a
confidential basis) prior to the disclosure of such data by
Anthra on a non-confidential basis, and (y) if the Option
is exercised, then after the date of the
<PAGE> 26
transfer pursuant to Section 4.10 all such clinical data may
be used freely, in a manner consistent with Leiras' use of its
own clinical data, by Leiras or Berlex within or outside the
Territory. Further, Anthra agrees to provide Berlex and Leiras
with copies of all contact reports that it prepares
memorializing its communications with the FDA relating to the
Product. If Berlex exercises the Option, then Berlex may apply
for an SNDA for the Product for the OP-Indication prior to the
transfer of the NDA to Berlex, in which case all
communications with the FDA regarding such SNDA shall be
conducted through Anthra; provided, however, that Berlex shall
not commence any clinical trials with respect thereto until
Anthra has filed an NDA for one of the Indications and SNDA
for the other Indication, or, if earlier, until Berlex obtains
Anthra's consent, which Anthra shall not unreasonably
withhold. If Anthra does not give such consent, it shall have
the burden of proof in providing substantiation therefor. In
any case, if Berlex has exercised the Option, Berlex may
conduct such trials anytime after December 31, 2003 without
Anthra's approval.
(l) Anthra, Leiras and Berlex shall each perform its respective
activities under Sections 3 and 4 of this Development
Agreement in good scientific manner, and in compliance with
all requirements of applicable laws, rules and regulations,
including, without limitation, Good Clinical Practices, Good
Manufacturing Practices and Good Laboratory Practices as set
forth from time to time by the FDA, insofar as applicable.
14. PAYMENT, EXPENSES
<PAGE> 27
(a) Anthra shall pay to Leiras, for the rights and license granted
under this Development Agreement, a nonrefundable payment of
Three Million Five Hundred Thousand Dollars ($3,500,000), as
follows:
(i) One Million Dollars ($1,000,000) on or before the
Effective Date of this Development Agreement of which
Leiras acknowledges receipt of Two Hundred Thousand
Dollars ($200,000) in accordance with the Option
Agreement dated July 6, 1998; and
(ii) Two Million Five Hundred Thousand Dollars
($2,500,000) on the earlier of (i) thirty (30) days
after the pre-NDA meeting between representatives of
Anthra and the FDA and (ii) December 31, 1998.
(b) Subject to the foregoing payments, and, except as provided in
Section 5.6 hereof, no royalty shall be payable by Anthra to
Leiras for the right and licenses granted to Anthra under this
Development Agreement.
(c) All payments to be made by Anthra to Leiras under this
Development Agreement shall be made in United States Dollars
and shall be made by wire transfer to such bank account as
shall be specified in writing five (5) days in advance by
Leiras.
(d) Anthra shall pay to the proper taxing authority any and all
withholding taxes or similar charges imposed by any
governmental unit in the Territory on any amounts due to
Leiras from Anthra pursuant to this Section 5, and shall use
commercially reasonable efforts to obtain and send to Leiras
proof of such payment of such taxes or charges. All amounts
paid by Anthra pursuant to this
<PAGE> 28
Section 5.4 shall be paid for the account of Leiras and
deducted from the amounts due from Anthra to Leiras pursuant
to this Section 5.
(e) The compensation for Leiras' services in conducting the
Additional Studies shall be FIM 3.100 per person day on each
day exceeding 10 person days plus all direct out-of-pocket
costs (which compensation does not include any financial costs
or general and administrative costs). Further, in the event
Anthra requests Leiras' assistance in clinical or regulatory
matters, Anthra shall pay Leiras a compensation of FIM 3.100
per person day plus direct outside costs, however, Leiras
shall not be requested to provide more than ten (10) person
days of such assistance to Anthra. The above mentioned daily
compensation of FIM 3.100 is valid as of the Effective Date
and will be increased annually by a cost increase, if any, due
to collective bargaining agreements, as applied customarily by
Leiras.
(f) If Anthra grants any third party any rights to Market,
distribute or sell the Product and the aggregate receipts
(taking into account both lump sum payments and royalty flows)
from such third party exceed the aggregate expected receipts
from Berlex to Anthra pursuant to Section 6.1(e), Anthra shall
pay Berlex a portion of the excess if and to the extent that
such excess is actually received. In determining the excess
under this Section 5.6(a), Anthra may deduct fifty per cent
(50%) of the payments made by Anthra in connection with
Additional Studies under Section 4.7. Any excess remaining
after such deduction shall first be paid by Anthra prorata
against Anthra's costs of biostudy and Leiras' costs of CMC
Sections for the development of the tablet form authorized and
agreed in
<PAGE> 29
accordance with Section 13.9 hereof and one-third of the
remainder shall be paid by Anthra to Berlex.
15. BERLEX OPTION
(a) Option
(i) Subject to this Section 6.1, Anthra hereby grants
Berlex an option to acquire irrevocably all right,
title and interest of Anthra to its perpetual
exclusive right and license under Section 2.1,
subject to Anthra retaining such rights as Anthra may
require for the maintenance of the IND and the NDA
and the filing of the SNDA for the second Indication
until the date of transfer thereof to Berlex pursuant
to Section 4.10. Berlex shall have the right to grant
to third parties sublicenses under such right and
license, subject to the prior written approval of
Anthra, which approval shall not be unreasonably
withheld, and further provided that Anthra's consent
shall not be required with respect to any sublicensee
which is a member of the Schering Group.
(ii) The Option may be exercised by Berlex, at any time
during the period (the "Option Period") commencing on
the Effective Date and ending on the 180th day
following the acceptance for filing of the NDA for
the first Indication for which the filing shall be
accepted, by providing written notice thereof to
Anthra.
(iii) Prior to Berlex exercising the Option, no member of
the Schering Group shall discuss, negotiate, or enter
into any agreement with any
<PAGE> 30
prospective sublicensee, concerning the
commercialization of the Product in the Territory.
(iv) In the event that Berlex exercises the Option, Berlex
shall have the right to develop the Product for the
OP Indication and obtain FDA approval for an SNDA for
the OP Indication.
(v) In the event Berlex exercises its Option, Anthra
shall transfer and assign to Berlex, free and clear
of all liens and encumbrances, all right, title and
interest of Anthra to its perpetual exclusive right
and license under Section 2.1, subject to such rights
as Anthra may require for the maintenance of the IND
and the NDA and the filing of the SNDA for the second
Indication until the date of transfer thereof to
Berlex, such transfer and assignment to be made
substantially in accordance with the assignment set
forth in Exhibit 6.1(e). Berlex shall pay Anthra the
following amounts:
(A) within thirty-three (33) days of FDA approval of
an NDA or SNDA for the Product for the H-Indication, a payment
of Six Million U.S. Dollars (U.S. $6,000,000);
(B) within thirty-three (33) days of FDA approval of
an NDA or SNDA for the Product for the O-Indication, a payment
of Fifteen Million U.S. Dollars (U.S. $15,000,000).
None of the amounts paid pursuant to this Section 6.1(e)(i)
and (ii) shall be refundable or creditable towards any other
payments due under this Section 6.1;
(C) a royalty for each Royalty Period (or part
thereof) on the Net Sales of the Product in the Territory
during the period commencing on the date of Launch and ending
on the fifteenth (15th) anniversary of the Effective Date. The
royalty shall be payable at the fixed rate set forth in the
table below relating to the Indication for which an NDA is
approved and the twelve (12) month period in which such NDA is
approved by the FDA (the "Applicable Rate"). The royalty
payable with respect to any Royalty Period shall be computed
by multiplying the
<PAGE> 31
Applicable Rate by the Net Sales of the Product in the
Territory during such Royalty Period.
H-Indication Table
Period of NDA Approval Applicable Rate
---------------------- ---------------
4/15/00 - 4/14/01 12%
4/15/01 - 4/14/02 12%
4/15/02 - 4/14/03 11%
4/15/03 - 4/14/04 9%
4/15/04 - 4/14/05 7%
4/15/05 - 4/14/06 5%
4/15/06 - 4/14/07 3%
4/15/07 - 4/14/08 1%
4/15/08 and Later 0%
O-Indication Table
Period of NDA Approval Applicable Rate
---------------------- ---------------
4/15/02 - 4/14/03 12%
4/15/03 - 4/14/04 12%
4/15/04 - 4/14/05 11%
4/15/05 - 4/14/06 9%
4/15/06 - 4/14/07 7%
4/15/07 - 4/14/08 5%
4/15/08 - 4/14/09 3%
4/15/09 - 4/14/10 1%
4/15/10 and Later 0%
provided, however, that if the FDA approves an NDA for either
the H-Indication or the O-Indication, and then approves an
SNDA for the other such Indication, the Applicable Rate
effective as of the date on which such SNDA is granted, and
for all succeeding Royalty Periods (or parts thereof), shall
be determined in accordance with the following formula:
(M+N)/2
where M is the Applicable Rate with respect to the Indication
for which the NDA was obtained and N is rate which would have
been the Applicable Rate if an NDA had been granted for the
other Indication,
<PAGE> 32
(both rates determined with reference to the tables above);
and it is further provided that the royalty payable by Berlex
to Anthra under this Section 6.1(e)(iii) for any Royalty
Period shall not be less than the Minimum Royalty for such
Royalty Period; and
(D) in the event that Berlex obtains FDA approval for
an SNDA for the OP-Indication, the royalty payable by Berlex
pursuant to Section 6.1(e)(iii) above shall be reduced as
follows:
(x) during those parts of the Royalty Periods
which fall within the first twelve (12)
month period following the approval of the
SNDA for OP-Indication, the Applicable Rate
shall be seventy-five percent (75%) of the
Applicable Rate determined in accordance
with Section 6.1(e)(iii) above,
(y) during those parts of the Royalty Periods
falling within the second twelve (12) month
period following the approval of the SNDA
for OP-Indication, the Applicable Rate shall
be fifty-five percent (55%) of the
Applicable Rate determined in accordance
with Section 6.1 (e)(iii) above,
(z) during all parts of subsequent Royalty
Periods for which a royalty is due under
Section 6.1(e)(iii) above, the Applicable
Rate shall be fifty percent (50%) of the
Applicable Rate determined in accordance
with Section 6.1(e)(iii) above.
(vi) Notwithstanding anything to the contrary in this
Development Agreement, Berlex shall have no
obligation to pay Anthra any royalty with respect to
Net Sales occurring on or after the fifteenth (15th)
anniversary of the Effective Date.
<PAGE> 33
Each royalty payment made pursuant to Section 6.1(e)(iii) or
(iv) shall be accompanied by written report, providing a
detailed breakdown of the Net Sales, and the components
thereof, during the relevant Royalty Period, and showing the
manner of calculation of such payment.
(vii) In the event that Berlex exercises the Option, it
shall (1) use commercially reasonable efforts to
Market and sell the Product in the Territory, and
commence Marketing of the Product in the Territory as
soon as practicable after the grant of the NDA for
the first Indication of the Product to be approved
and in any case no later than six (6) months
thereafter, (2) conduct all Marketing, sales and
distribution activities at its own expense, (3) have
the sole right to establish pricing in the Territory,
and (4) (i) during the term of this Agreement, and
for one year thereafter if the Agreement has been
terminated by Anthra in accordance with Section
18.2(b) or 18.3(b) hereof, shall not, and shall not
permit any member of the Schering Group or its
licensees of the Product to, Market or sell in the
Territory disodium clodronate in dosage forms other
than those for the Product, and (ii) for a period of
five (5) years following the date of Launch, shall
not, and shall not permit any member of the Schering
Group or its licensees of the Product to, Market or
sell in the Territory any bisphosphonate product
(whether internally developed or licensed from a
third party) which competes with the Product (which
restriction the parties acknowledge to be reasonable,
valid and necessary for the adequate protection for
the Product business). All Product sales in the
Territory
<PAGE> 34
shall be made by, and for the account of, Berlex or
its Affiliates or sublicensees, as the case may be.
(viii) In the event that Berlex exercises the Option, during
the term of this Development Agreement and for three
(3) years thereafter, Berlex shall maintain, at its
sole expense, product liability insurance relating to
the Product that is comparable in type and amount to
the insurance it maintains with respect to its other
pharmaceutical products with a similar risk profile
that are Marketed, distributed and sold in the
Territory.
(ix) In the event that Berlex shall not exercise the
Option, Berlex shall not Market, distribute or sell
the Product to any Person in the Territory, or to any
Person outside the Territory that it knows intends to
directly or indirectly Market, distribute or sell the
Product to any Person in the Territory.
(x) All payments to be made by Berlex to Anthra under the
Development Agreement shall be made in United States
dollars and shall be made by wire transfer to such
bank account as shall be specified in writing no less
than five (5) days in advance by Anthra.
(xi) Until transfer of the IND, NDA and any SNDA to Berlex
under Section 4.10, Berlex shall furnish to Anthra
for approval with all Marketing materials proposed to
be distributed by Berlex in connection with the
Product, provided, however, that Anthra may withhold
approval only for reasons for scientific or technical
accuracy or completeness, or otherwise if Anthra's
medical director determines in good faith that use of
<PAGE> 35
such materials in the Territory may give rise to
liability under applicable law or regulations and
notifies Berlex in writing of the reasons therefor.
Anthra shall not unreasonably withhold its approval.
If Anthra does not respond within ten (10) working
days, such materials shall be deemed to be approved.
(b) Third Party Negotiations
(i) At any time after the acceptance for filing of the
first NDA for the Product that shall be accepted for
filing, Anthra may enter into negotiations with
prospective sublicensees of the Technology to sell,
Market and distribute the Product in the Territory.
Anthra may disclose such information relating to the
clinical development of the Product as may be
necessary to advance such discussions, subject to the
condition that all third parties to which Anthra
shall make such disclosures shall first enter into
confidentiality agreements that impose
confidentiality obligations not less stringent than
those set forth in Article 8.
(ii) Subject to Berlex's Option, Anthra shall have an
exclusive, royalty-free license to Market, sell and
distribute the Product in the Territory, including
the right to sublicense to any entity which does not
Market, sell or distribute in the Territory during
the term of this Development Agreement any product
which competes with the Product, provided however
that if Anthra proposes at any time to grant a
license to a sublicensee on terms more favorable than
the terms offered to Berlex under this Article 6,
then Anthra shall first give Berlex written notice
thereof, setting forth the terms in detail, and Bedex
shall have a right of first refusal, exercisable on
written
<PAGE> 36
notice to Anthra within the later of (i) forty-five
(45) days after receipt of Anthra's notice, or (ii)
unless Berlex has notified Anthra that it will
exercise the Option, forty-five (45) days after
expiration of the Option Period, to accept such more
favorable terms.
(c) In the event that Bedex does not exercise the Option, then
Anthra shall use commercially reasonable efforts to Market and
sell the Product in the Territory. Anthra shall commence
Marketing of the Product in the Territory as soon as
practicable after the grant of the NDA for the first
Indication of the Product has been approved and in any event
not later than six (6) months thereafter. Anthra, its
Affiliates and sublicensees shall bear all costs and expenses
arising out of or relating to such Marketing, distribution and
sale of the Product. All Product sales in the Territory shall
be made by, and for the account of, Anthra or its Affiliates
or sublicensees, as the case may be.
(d) So long as Berlex does not exercise its Option, Anthra shall
have sole right to establish pricing for the Product in the
Territory.
(e) During the term of this Agreement, prior to the Launch, Anthra
shall maintain, at its sole expense, product liability
insurance relating to the Product with single occurrence
coverage of not less than five (5) million (US$ 5,000,000)
dollars, with Leiras named as an additional insured. In the
event that Berlex does not exercise the Option, then during
the term of this Agreement after the Launch, and for a period
of five (5) years thereafter, Anthra and its sublicensees
shall maintain, at their sole expense, product liability
insurance relating to the Product with single occurrence
coverage of not less than twenty-five million (US$ 25,000,000)
dollars, with Leiras as a named insured. Anthra shall furnish
Leiras with a
<PAGE> 37
certificate from the insurer evidencing such US$ 5,000,000
insurance coverage within thirty (30) days after the Effective
Date hereof, and evidencing such US$ 25,000,000 insurance
coverage within twenty (20) days after expiration of Option
period in the event the Option is not exercised and in each
case at least thirty (30) days prior to any insurance
expiration with respect to renewals.
(f) In the event that Berlex exercises the Option, Anthra or its
Affiliates (i) during the term of this Agreement, and for one
year thereafter if the Agreement has been terminated by Leiras
or Berlex in accordance with Sections 18.2(a), 18.3(a), 18.4
or 18.5, shall not, directly or indirectly, sell, Market or
distribute in the Territory disodium clodronate in any dosage
forms, or (ii) for a period of five (5) years following the
date of Launch of the Product directly or indirectly, sell,
Market or distribute in the Territory any bisphosphonate
product that competes with the Product. Additionally, as long
as the Manufacturing Agreement is in effect, Anthra shall not,
directly or indirectly, sell, Market or distribute in the
Territory any biophosphonate product that competes with the
Product.
(ii) The parties acknowledge that all restrictions
contained in this Section 6.7 are reasonable, valid
and necessary for the adequate protection of the
Product business.
16. ACCOUNTS AND RECORDS
(a) In the event that Berlex shall exercise the Option, Berlex
shall keep accurate and complete books and records, maintained
in accordance with IAS, of all Product sold, including the
quantities and sale prices, and any deductions therefrom,
together with copies of invoices and other relevant documents
showing all orders
<PAGE> 38
placed and executed. Berlex shall continue to keep such books
and records for six (6) years following the relevant
transactions.
(b) Leiras shall keep accurate and complete books and records,
maintained in accordance with IAS, of all costs and expenses
pertaining to its activities pursuant to Section 4.7. Leiras
shall continue to keep such books and records for six (6)
years following the relevant transactions.
(c) Anthra shall keep accurate and complete books and records,
maintained in accordance with IAS, of all costs and expenses
pertaining to its payments pursuant to Section 4.7 with
respect to Additional Studies. Anthra shall continue to keep
such books and records for six (6) years following the
relevant transactions.
(d) Berlex and Leiras shall permit the independent public
accountants of Anthra, at reasonable times during normal
business hours, to inspect and take copies of or extracts from
any relevant documents in the possession or under their
control for the purpose of reporting to Anthra with respect to
verification of compliance with Sections 4 or 6 hereof, as the
case may be, and subject to such accountants agreeing to the
confidentiality provisions of Section 8 hereof or
substantially similar provisions as to confidentiality.
(e) Anthra shall permit the independent public accountants of
Berlex, at reasonable times during normal business hours, to
inspect and take copies of or extracts from any relevant
documents in the possession or under their control for the
purpose of reporting to Berlex with respect to verification of
payments made by Anthra under Sections 4.2 and 4.7, as the
case may be, and subject to such
<PAGE> 39
accountants agreeing to the confidentiality provisions of
Section 8 hereof or substantially similar provisions as to
confidentiality.
(f) In the event of a dispute regarding such books and records,
including, without limitation, the amount of payments owed to
Leiras under Section 4.7 then Leiras, Berlex and Anthra shall
work in good faith to resolve the disagreement. If the parties
are unable to reach a mutually acceptable resolution of any
such dispute within thirty (30) days, the dispute shall be
submitted for arbitration to a certified public accounting
firm selected by the certified public accountants representing
the parties involved in the dispute, or to such other Person
as the parties shall mutually agree, whose decision shall be
final. The losing party(ies) shall bear the cost of conducting
such arbitration as well as the initial audit, but each party
shall otherwise bear its own expenses thereof, including,
without limitation, its own legal fees.
17. CONFIDENTIALITY
(a) Except to the extent permitted by this Section 8 or as
otherwise agreed by the parties in writing, the parties agree
that, at all times during the term of this Agreement and
thereafter for a period of thirty (30) years, the party
receiving information hereunder (the "Receiving Party") shall
keep completely confidential, shall not publish or otherwise
disclose and shall not use directly or indirectly for any
purpose other than in connection with this Agreement any
information furnished to it by another party (the "Disclosing
Party") pursuant to this Agreement or otherwise relating to
any transaction contemplated hereby, including Information
heretofore furnished to it (the "Confidential Information"),
<PAGE> 40
except to the extent that the Receiving Party can establish by
competent proof that such information:
(i) was already known to the Receiving Party, other than
under an obligation of confidentiality, at the time
of disclosure by the Disclosing Party, as evidenced
by the Receiving Party's prior written records;
(ii) was part of the public domain at the time of its
disclosure by the Disclosing Party;
(iii) became part of the public domain after its disclosure
by the Disclosing Party, other than through any act
or omission of the Receiving Party in breach of this
Development Agreement; or
(iv) was disclosed to the Receiving Party by a third party
who had no obligation not to disclose such
information to others.
(b) Each party may disclose Confidential Information to the extent
that such disclosure is:
(i) Made in response to a valid order of a court of
competent jurisdiction or other governmental body of
a country or any political subdivision thereof of
competent jurisdiction; provided, however, that the
Receiving Party shall first have given notice to the
Disclosing Party and given the Disclosing Party a
reasonable opportunity to quash such order and to
obtain a protective order requiring that the
Confidential Information and/or documents that are
the subject of such order be held in confidence by
such court or agency or, if disclosed, be used only
for the purposes for which the order was issued; and
provided further that if a disclosure order
<PAGE> 41
is not quashed or a protective order is not obtained,
the Confidential Information disclosed in response to
such court or governmental order shall be limited to
that information which is legally required to be
disclosed in such response to such court or
governmental order;
(ii) Otherwise required by law, in the opinion of legal
counsel to the Receiving Party as expressed in an
opinion letter in form and substance reasonably
satisfactory to the Disclosing Party, which shall be
provided to the Disclosing Party at least forty-eight
(48) hours prior to the Receiving Party's disclosure
of the Confidential Information pursuant to this
Section 8.2(b);
(iii) Made by the Receiving Party to the FDA as required in
connection with NDA and SNDA submissions for the
Product, provided that reasonable measures shall be
taken to assure confidential treatment of such
Confidential Information; or
(iv) Made by the Receiving Party to third parties as may
be necessary in connection with the development and
commercialization of the Product as contemplated by
this Development Agreement, including, without
limitation, subcontracting and sublicensing
transactions in connection therewith, provided that
the Receiving Party in question shall in each case
obtain from the proposed third party recipient a
written confidentiality undertaking containing
confidentiality obligations no less stringent than
those set forth in this Section 8.
(c) Public Announcements. No party hereto shall make any public
announcements regarding this Development Agreement or the
transactions
<PAGE> 42
contemplated hereby without the written consent of the other
parties; provided, however, that each party shall be entitled
to disclose information to the extent required to comply with
applicable securities laws, including those relating to
initial public offerings. The disclosing party shall be solely
responsible for the accuracy and completeness of any such
disclosure. Except as required by law, no party to this
Agreement shall use the name of another or any of its
Affiliates or parent companies, including, without limitation,
Schering AG in any public announcement, press release or other
public document without the prior written consent of such
other party, Affiliate or parent Company, as the case may be.
(d) Notification. The Receiving Party shall notify the Disclosing
Party immediately, and cooperate with the Disclosing Party as
the Disclosing Party may reasonably request, upon the
Receiving Party's discovery of any loss or compromise of the
Disclosing Party's Confidential Information.
(e) Remedies. Each Receiving Party agrees that the unauthorized
use or disclosure of any material Confidential Information by
the Receiving Party in violation of this Agreement will cause
severe and irreparable damage to the Disclosing Party. In the
event of any violation of this Article 8, the Receiving Party
agrees that the Disclosing Party shall be authorized and
entitled to obtain from any court of competent jurisdiction
injunctive relief, whether preliminary or permanent, as well
as any other relief permitted by applicable law. The Receiving
Party agrees to waive any requirement that the Disclosing
Party post a bond as a condition for obtaining any such
relief.
18. EXECUTIVE MANAGEMENT COMMITTEE
<PAGE> 43
(a) Formation of the Executive Management Committee. Anthra,
Leiras, and Berlex shall establish a project oversight and
management committee (the "Executive Management Committee")
comprised of six (6) members. Anthra, Leiras, and Berlex each
shall appoint two (2) members to the Executive Management
Committee, which members shall be employees or members of the
Board of Directors of any party hereto. Initial appointments
shall be made within thirty (30) days of the Effective Date. A
member of the Executive Management Committee may be removed at
any time, with or without cause, by the party that appointed
such member. A member of the Executive Management Committee
shall serve until a successor is named by the party that
appointed such member.
(b) Authority of the Executive Management Committee. The Executive
Management Committee shall (a) monitor and review the progress
of the development activities conducted by the parties, (b)
monitor and review the progress of all Product Marketing and
sales activities conducted pursuant to this Development
Agreement, provided however that in the event Berlex exercises
its Option, Berlex shall be obligated to inform the Executive
Management Committee of Marketing issues and progress only for
so long as Anthra holds the Product NDA and SNDA(s), and (c)
take such other actions as the parties may mutually agree,
except that the Executive Management Committee may not take
any action that would conflict with any provision of this
Development Agreement. It is not intended that the Executive
Management Committee have any power or authority to direct the
conduct of the affairs or the decision-making of any party
hereto. Each party to this Development Agreement shall retain
the
<PAGE> 44
rights, powers, and discretion granted to it under this
Development Agreement, and no such rights, powers, or
discretion shall be delegated to or vested in the Executive
Management Committee unless such delegation or vesting of
rights is expressly provided for in this Development Agreement
or the parties expressly so agree in writing. The Executive
Management Committee shall not have the power to amend or
modify this Development Agreement, which may only be amended
or modified as provided in Section 22.3.
(c) Procedural Rules of the Executive Management Committee.
(i) The Executive Management Committee shall adopt such
standing rules as shall be necessary for its work.
(ii) A quorum of the Executive Management Committee shall
exist whenever there is present at a meeting at least
one (1) member appointed by each party. Members of
the Executive Management Committee may attend a
meeting either in person or by telephone or video
conference. Representation by proxy shall not be
allowed.
(iii) The Executive Management Committee shall take action
(i) by consensus of the members present at a meeting
at which a quorum exists, or (ii) by written
resolutions approved in writing by all of the
members. In the event that the Executive Management
Committee cannot or does not, after good faith
efforts, reach agreement on an issue, then such issue
shall be referred to the chief executive officers of
Anthra, Leiras, and in the case of Berlex its
designee who shall confer on the resolution of the
issue. Any final decision mutually agreed to by such
chief executive officers and
<PAGE> 45
Berlex's designee shall be in writing, and shall be
conclusive and binding upon the parties.
(iv) The Executive Management Committee shall have one (1)
chairperson. The chairperson shall serve for a
one-year term and shall alternately be designated by
Anthra, Leiras, and Berlex from among the
representatives appointed by each. The initial
chairperson shall be designated by Anthra. The
chairperson shall have one vote only, and no
authority to break a tie-vote.
(v) The Executive Management Committee shall meet once
every three (3) months, or more frequently as
mutually agreed to by the members, at times and
places to be mutually agreed upon. Thirty (30)
calendar days' prior written notice of any such
meeting shall be provided to the members, unless such
notice is waived in writing by all the members.
(d) Reports to the Executive Management Committee. The parties
shall use commercially reasonable efforts to keep the
Executive Management Committee informed of their activities
conducted pursuant to this Development Agreement, including
without limitation material developments relating to the
performance of their respective obligations under this
Development Agreement.
19. INTELLECTUAL PROPERTY
(a) Anthra and its Affiliates shall own any Improvements generated
by Anthra and its Affiliates arising out of, or related to,
the performance by Anthra of its obligations under this
Development Agreement; provided, however, that Anthra shall
promptly grant Leiras a perpetual, exclusive, royalty-free
license to use such
<PAGE> 46
Improvements solely in connection with the development,
registration, manufacturing, Marketing and sale of the Product
outside the Territory (and to Berlex inside the Territory if
Berlex has exercised the Option). Anthra shall promptly assign
to Leiras, without further consideration, any such
Improvements that relate directly and solely to the Product;
provided, however, that Leiras shall promptly grant Anthra a
perpetual, exclusive, royalty-free license to use such
Improvements in connection with the Marketing and sale of the
Product in the Territory in the event that Berlex does not
exercise the Option.
(b) Leiras and its Affiliates shall own any improvements generated
by Leiras and its Affiliates during the term of this
Development Agreement; provided, however, that Leiras shall
grant Anthra a perpetual, exclusive, royalty-free license to
use such Improvements solely in connection with the Marketing
and sale of the Product for oncology-related indications in
the Territory in the event that Berlex does not exercise the
Option, and shall grant such license to Berlex if Berlex does
exercise the Option. As to other indications, the respective
parties agree to negotiate in good faith the terms of a
license in the Territory for such indications.
(c) In the event of any infringement in the Territory by a third
party of any intellectual property rights covering the Product
(other than any Improvements owned or controlled solely by
Anthra), including, without limitation, the Technology, the
Trademark, and any other Improvements owned or controlled by
Leiras (other than Improvements licensed to Leiras under
Section 10.1, but including Improvements assigned to Leiras
thereunder), Leiras shall have the first right (but not the
obligation) to pursue any and all injunctive, compensatory and
<PAGE> 47
other remedies and relief (collectively, "Remedies") against
such third party. If Leiras shall determine not to pursue
Remedies with respect to any such intellectual property
licensed to Anthra hereunder, or with respect to the
Trademark, within one-hundred and twenty (120) days after
notice from Anthra, accompanied by a detailed statement from
Anthra's chief financial officer demonstrating that such
infringement has a material adverse effect on Anthra's sales
of the Product under this Development Agreement, requesting
Leiras to do so, then Leiras shall, within sixty (60) days
thereafter obtain an opinion for its outside intellectual
property legal counsel, who shall be reasonably acceptable to
Anthra, with respect to such infringement. If such counsel
confirms that there is a material infringement, then unless
Berlex shall theretofore have exercised its Option, Anthra
shall have the right (but not the obligation) to pursue
Remedies against such third party.
(ii) In the event of any infringement in any country of
the world by a third party of any intellectual
property rights relating to the Improvements owned or
controlled solely by Anthra (other than those Anthra
Improvements as to which Leiras has the first right
to initiate Remedies under paragraph (a) of this
Section 10.3), Anthra shall have the first right (but
not the obligation) to pursue any and all Remedies
against such third party. If Anthra shall determine
not to pursue Remedies with respect to any
intellectual property licensed to Leiras hereunder
within one-hundred and twenty (120) days after notice
from Leiras requesting Anthra to do so, then Anthra
shall, within sixty (60) days thereafter, give
written notice to
<PAGE> 48
Leiras thereof, and then Leiras shall have the right
(but not the obligation) to pursue Remedies against
such third party.
(iii) In the event that a party shall pursue Remedies
hereunder, the other parties shall use all reasonable
efforts to assist and cooperate with the party
pursuing such Remedies. Each party shall bear its own
costs and expenses relating to such pursuit. Any
damages or other amounts collected shall be
distributed, first, to the party that pursued
Remedies to cover its costs and expenses and, second,
to the other parties to cover their costs and
expenses, if any, relating to the pursuit of such
Remedies; any remaining amount shall be distributed
to the party that pursued the Remedies.
20. WARRANTY; INDEMNITY
(a) Representations, Warranties and Covenants. Each party
represents and warrants to the other parties as follows: (i)
it is a duly organized and validly existing corporation under
the laws of its jurisdiction of incorporation; (ii) it has
full corporate power and authority and has taken all corporate
action necessary to enter into and perform this Development
Agreement; (iii) the execution and delivery of this
Development Agreement and the transactions contemplated herein
do not violate, conflict with, or constitute a default under
its charter or similar organization document, its bylaws or
the terms or provisions of any material agreement or other
instrument to which it is a party or by which it is bound, or
any order, award, judgment or decree to which it is a party or
by which it is bound; and (iv) this Development Agreement is
its legal, valid and binding obligation, enforceable in
accordance with the terms and conditions hereof.
<PAGE> 49
(b) Warranties of Leiras: Limitations. Leiras warrants to Anthra
that (a) the Trademark is registered in the U.S. Patent and
Trademark Office, registration no. 1428078 in Class 5
(international classification) and Leiras owns all right,
title and interest in the registration; (b) Leiras has the
right, power and authority to grant the licenses set forth in
Section 2.1; (c) at the time of the delivery, the clinical
supplies provided to Anthra pursuant to Section 4.2 will have
been manufactured and stored in accordance with all applicable
Good Manufacturing Practices and the Product Specifications;
(d) the CMC Data were, and will have been, prepared in
compliance with all applicable Good Manufacturing Practices;
(e) to the best knowledge of Leiras, the Pre-Clinical Studies
were prepared in accordance with European Good Laboratory
Practices and/or FDA Good Laboratory Practices as specified in
the study reports and in Exhibit 4.7; and (f) any work
performed by Leiras on the Additional Studies will have been
done in accordance with FDA Good Laboratory Practices.
(c) Anthra warrants to Leiras that (a) Anthra has adequate and
necessary resources and capability to carry out its
development obligations under this Development Agreement, (b)
any clinical studies relating to the Product which may be
conducted by Anthra and any protocols, documentation,
including NDAs or SNDAs prepared or submitted by or on behalf
of Anthra to the FDA or any other regulatory authority, shall
be conducted or prepared in compliance with FDA regulations
and any other applicable provisions of law.
(d) Disclaimer. EXCEPT AS SET FORTH IN SECTIONS 11.1, 11.2 AND
11.3, EACH PARTY HEREBY DISCLAIMS ANY AND ALL WARRANTIES,
WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, WITH
<PAGE> 50
RESPECT TO THE TECHNOLOGY, THE DEVELOPMENT OR OTHER ACTIVITIES
UNDER THIS DEVELOPMENT AGREEMENT, OR THE PRODUCT, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF QUALITY, PERFORMANCE,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE.
(e) Leiras Indemnity. Subject to Section 11.8, Leiras shall
indemnify and hold Anthra and its officers, directors,
employees, agents, representatives and consultants (each a
"Leiras Indemnitee"), harmless from and against any and all
losses, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees) (collectively
"Losses") incurred or payable by any Leiras Indemnitee in
connection with any and all suits, investigations, claims or
demands by third parties (whether based on death, personal
injury or otherwise, and whether or not a proceeding is
commenced against, or names as a party thereto, any Leiras
Indemnitee), arising out of any breach of Leiras' warranty
under Section 11.2 of this Development Agreement.
(f) Anthra Indemnity. Subject to Section 11.8, Anthra shall
indemnify and hold Leiras and Berlex and their respective
officers, directors, employees, agents, representatives and
consultants (each an "Anthra Indemnitee"), harmless from and
against any and all Losses incurred or payable by any Anthra
Indemnitee in connection with any and all suits,
investigations, claims or demands by third parties (whether
based on death, personal injury or otherwise, and whether or
not a proceeding is commenced against, or names as a party
thereto, any Anthra Indemnitee), (A) arising out of or in
connection with (i) any breach by Anthra or any of its
sublicensees of any of their respective obligations under this
<PAGE> 51
Development Agreement, or (ii) any other action or failure to
act on the part of Anthra or any of its sublicensees, or (B)
otherwise arising out of or in connection with the
development, Marketing, distribution, sale or use of the
Product in the Territory, other than (x) resulting from a
breach of Leiras' warranty under Section 11.2. hereof or (y)
to the extent caused by modification of, or tampering with,
the Product by an intentional third party intervention.
In the event that Berlex exercises its Option, then from and after
Transfer Date, Anthra shall be relieved of its obligation of indemnity
to Leiras and Berlex under subpart (B) (but not subpart (A)) of this
Section 11.6. in respect of all Losses arising out of or in connection
with (i) development, Marketing, distribution or sale of the Product
after the Transfer Date, or (ii) use of the Product Marketed,
distributed or sold after the Transfer Date, except that Anthra's
indemnity under subpart (B) shall remain in full force and effect with
respect to any Losses arising out of, or in connection with the
exercise or non-exercise by Anthra of any of the rights retained by
Anthra under Section 6.1 (a) or 6.1 (e) of this Development Agreement.
(g) Berlex Indemnity. Subject to Section 11.8, in the event that
Berlex exercises the Option, Berlex shall indemnify and hold
Anthra and its respective officers, directors, employees,
agents, representatives and consultants (each a "Berlex
Indemnitee"), harmless from and against any and all losses,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees) (collectively "Losses") incurred
or payable by any Berlex Indemnitee in connection with any and
all suits, investigations, claims or demands by third parties
(whether based on death, personal injury or otherwise, and
whether or not a proceeding is
<PAGE> 52
commenced against, or names as a party thereto, any Berlex
Indemnitee), (A) arising out of or in connection with (i) any
breach by Berlex or any of its sublicensees after the Transfer
Date of any of their respective obligations under this
Development Agreement, or (ii) any other action or failure to
act after the Transfer Date on the part of Berlex or any of
its sublicensees, or (B) otherwise arising out of the
development of the Product after the Transfer Date by Berlex
or any of its sublicensees or the Marketing, distribution,
sale or use of the Product in the Territory, other than (x)
resulting from a breach of Leiras' warranty under Section 11.2
hereof, or (y) use of the Product Marketed, distributed or
sold by Anthra or its sublicensees prior to the Transfer Date.
(h) Indemnification Procedure.
(i) Each Indemnitee agrees to give the indemnifying party
prompt written notice of any Losses or the discovery
of a fact upon which such Indemnitee intends to base
a request for indemnification under Sections 11.5,
11.6 or 11.7.
(ii) The indemnifying party and the Indemnitee shall each
furnish promptly to the other, copies of all claims
or demands and official documents received in respect
of any Losses. The Indemnitee shall cooperate as
reasonably requested by the indemnifying party in the
defense against any Losses, subject to the right of
the Indemnitee to retain its own counsel at its own
expense.
(iii) With respect to any Losses relating solely to the
payment of money damages and which will not result in
the Indemnitee becoming subject to
<PAGE> 53
injunctive or other relief or otherwise adversely
affecting the business of the Indemnitee in any
manner, and as to which the indemnifying party shall
have acknowledged in writing the obligation to
indemnify the Indemnitee hereunder, the indemnifying
party shall have the sole right to defend, settle or
otherwise dispose of such Losses, on such terms as
the Indemnifying party, in its sole discretion, shall
deem appropriate.
(iv) With respect to Losses relating to all other matters
as to which the indemnifying party shall have
acknowledged in writing the obligation to indemnify
the Indemnitee hereunder, the indemnifying party
shall have the sole right to control the defense of
such matter, provided that the indemnifying party
shall obtain the written consent of the Indemnitee,
which shall not be unreasonably withheld, prior to
ceasing to defend, settling or otherwise disposing of
any Losses if as a result thereof (i) the Indemnitee
would become subject to injunctive or other equitable
relief or any remedy other than the payment of money
by the indemnifying party or (ii) the business of the
Indemnitee would be adversely affected.
(v) The Indemnitee shall have the right to control the
defense of all other matters, provided that the
indemnifying party shall not be liable for any
settlement or other disposition of a Loss by the
Indemnitee which is reached without the written
consent of the indemnifying party, which consent
shall not be unreasonably withheld.
Except as provided above, the costs and expenses, including
reasonable fees and disbursements of counsel, incurred by any
Indemnitee in connection with any
<PAGE> 54
claim shall be reimbursed on a calendar quarter basis by the
indemnifying party, without prejudice to the indemnifying
party's right to contest the Indemnitee's right to
indemnification and subject to refund in the event the
indemnifying party is ultimately held not to be obligated to
indemnify the Indemnitee.
(i) Limitation. In no event shall either Leiras or Anthra be
liable to the other for Losses in respect of a suit,
investigation, claim or demand to the extent of which Leiras
or Anthra, respectively, has previously indemnified the other
under the Manufacturing Agreement.
21. TRADEMARK
(a) Anthra undertakes to Market, promote, distribute and sell the
Product exclusively under the Trademark. The Trademark shall
be the exclusive property of Leiras.
(b) Anthra recognizes the rights of Leiras as owner of the
Trademark. The use thereof by Anthra shall always be on behalf
and for the benefit of Leiras.
(c) Nothing contained in this Development Agreement shall be
construed to give Anthra a right to use the Trademark or
portions thereof or any word similar to the Trademark or the
name of Leiras or portions thereof or any word similar to the
name of Leiras, Berlex or Schering AG as Anthra's corporate
name or any part thereof or otherwise, in any manner other
than in accordance with Section 12.1. Anthra shall not at any
time adopt any word or symbol which is similar to the
Trademark or to the name of Leiras on any pharmaceutical or
chemical or healthcare product, or in any other manner
whatsoever, unless specifically consented to by Leiras in
writing.
<PAGE> 55
(d) Anthra shall not register or attempt to register for any
purpose any trademark or name of Leiras without Leiras' prior
written consent.
22. PATENTS
(a) Leiras hereby represents and warrants to Anthra that:
(A) Leiras is the owner of the entire right, title
and interest in and to the United States patents and patent
applications listed in Exhibit 13.1(i) hereto and to the
extent set forth in Exhibit 13.1(i) (collectively, the
"Patents");
(B) Leiras is not aware of any claim of infringement
of, or interference with, any of the Patents in the Territory
by a third party;
(C) Leiras is not aware of any legal or
administrative actions, proceedings, judgments or settlements,
including, without limitation, any reexamination or reissue
proceedings, currently pending with respect to the Patents,
and no such actions or proceedings of which Leiras is aware
have been threatened against Leiras in the Territory;
(D) Leiras is not aware of any prior art or event
not cited or disclosed during prosecution of the Patents which
was required to be cited or disclosed therein.
(E) Leiras is not aware of any third party patent
(or patent application) in the Territory, the claims of which
cover the manufacturing, use or sale of the Product under the
Technology.
For purposes of determining whether Leiras is "aware" of any
matter hereinabove referred to only the actual knowledge of
any senior executive or of the Head of Leiras' Patent
Department shall be considered, and does not mean that any
investigation or inquiry has been conducted.
Furthermore, Anthra has inspected Leiras' patent file
regarding the Product as indexed in the Exhibit 13.1 and
anything Anthra could have seen in the patent file is not
included in the above representations.
(b) Except as provided in Section 13.1, Leiras does not make, and
hereby excludes, any and all express or implied, written or
unwritten, representations or
<PAGE> 56
warranties against patent infringement with respect to the
Products supplied by Leiras hereunder.
(c) Upon knowledge of the commencement of any suit against Leiras
or Anthra which is based in whole or in part on a claim that
any Products supplied by Leiras hereunder or under the
Manufacturing Agreement and Marketed, sold or distributed by
Anthra under its license from Leiras under this Development
Agreement, constitutes an infringement of any United States
patent, Leiras or Anthra, as the case may be, shall promptly
notify the other in writing. Subject to clause 13.6 hereof,
Leiras shall, with counsel reasonably acceptable to Anthra,
assume and conduct the defense of any suit or claims brought
or asserted, or demand made, against Leiras or Anthra insofar
as it is based on such claim of infringement. The damages and
costs awarded as a result of such suit or the amount of any
settlement in respect of such suit, claim or demand shall be
paid by Leiras subject to reimbursement by Anthra as provided
in clause 13.6. Leiras agrees to consider, but shall not be
obligated to accept, any reasonable offer by the claimant of a
license to the allegedly infringing patent.
(d) With respect to any suit, claim or demand that is subject to
the indemnity set forth in this Article 13, (i) Anthra shall
be advised periodically with respect to all strategy and
proceedings conducted by Leiras under clause 13.3, (ii) Anthra
may, at Anthra's expense, participate in the defense thereof
through counsel selected by Anthra if Anthra's interests may
be affected thereby, and (iii) Anthra shall have the right to
consent to any proposed settlement thereof, which consent
shall not be unreasonably withheld.
<PAGE> 57
(e) Anthra agrees to take all action reasonably requested by
Leiras to assist Leiras in connection with the defense and
settlement of any suit, claim or demand under subsection 13.3
hereof.
(f) Anthra shall, within thirty (30) days upon being invoiced
therefor by Leiras, pay to Leiras sixty-seven and a half
percent (67.5%) of (x) any costs and expenses incurred by
Leiras in defending any suit or claim under clause 13.3, (y)
any lump sum damages to the date of any judgment and costs
awarded as a result of such suit or paid in settlement of such
suit, claim or demand (with Anthra's approval, as required
under clause 13.4), and (z) any royalties awarded as a result
of such suit or paid in settlement of such suit, claim or
demand (with Anthra's approval, as required under clause 13.4)
provided however that after the aggregate of all costs,
expenses, damages and royalties under clauses (x), (y) and (z)
and corresponding clauses (x), (y) and (z) of Section 12.5 of
the Manufacturing Agreement reaches 9,230,769 US Dollars (and
Anthra's sixty-seven and a half percent (67.5%) share has
reached 6,230,769 US Dollars), then thereafter Anthra shall be
responsible for reimbursing Leiras for one hundred percent
(100%) of all further costs, expenses, damages and royalties
enumerated under clauses (x), (y) and (z), if any. Anthra
shall take all appropriate action to minimize damages which
may be assessed in any such suit, including, without
limitation, accepting any reasonable reformulation of the
Product which Leiras, at its reasonable option, may determine
to be required.
(g) The provisions of Sections 13.3 through 13.6 and the last
sentence of Section 13.8 shall not apply in the event Berlex
exercises its Option, except that, any
<PAGE> 58
claim of infringement made under 35 USC Section 271(e)(2) by
reason of any application filed by Anthra with the FDA shall
be considered to be included under Sections 13.3 through 13.6.
(h) Anthra has advised Leiras that Anthra will obtain from its
patent counsel an opinion as to whether Marketing or sale of
the Product in the Territory may infringe Boehringer Mannheim
("BM"), U.S. patent no. 4,859,472. Following receipt of the
opinion of Anthra patent counsel, Anthra will furnish Leiras
with a copy thereof and Leiras, Leiras' patent counsel, Anthra
and Anthra's patent counsel shall consult with each other, and
if the opinion of Anthra patent counsel or Leiras patent
counsel, or both, is that there is or may be infringement,
then, either Leiras or Anthra may, by written notice to the
other, advise the other that it is necessary or desirable to
obtain a license with respect to the Product under such patent
from BM for the Territory. Thereafter either Leiras or Anthra
may commence negotiations with BM with the objective of
obtaining license for both Leiras and Anthra and their
respective Affiliates, and Leiras and Anthra shall cooperate
in such negotiations and each allow the other, to the extent
practicable, to participate in its negotiation. Any license
negotiated shall provide for a royalty not to exceed five
percent (5%) of Net Sales of Products with no up front cash
payment, unless otherwise mutually agreed by the parties. As
between Leiras and Anthra, Leiras shall be liable for 32.5% of
the royalties and Anthra shall be liable for 67.5% of the
royalties, and the royalties shall be counted as royalties
under Section 13.6 clause (z) of this Development Agreement
and corresponding Section 12.6 clause (z) of the Manufacturing
Agreement for purposes of
<PAGE> 59
determining when the aggregate of 9,230,769 US Dollars under
Sections 13.6 and 12.6 thereof, respectively, has been
reached, and thereafter, Anthra, in addition to its other
obligations thereunder, shall be liable for one hundred
percent (100%) of the royalties due to BM under the license.
(i) Leiras undertakes to use commercially reasonable efforts to
complete a biostudy of the tablet form of the Product by March
31, 1999. Upon completing such study, Leiras agrees promptly
to provide Anthra with the data and analysis thereof. In the
event that the parties mutually agree to develop a tablet form
of the Product, then Anthra shall be responsible for the
clinical development work in connection therewith in the
Territory, and Leiras shall prepare the CMC Data therefor. The
parties agree to share equally the costs of any license that
is required to be obtained from any third party, including
without limitation Penwest Pharmaceutical Co., in connection
with the manufacture, marketing or sale of any such tablet
formulation in the Territory. In the event that Berlex
exercises the Option, then in all events such rights in and to
such development work shall inure to the benefit of Berlex and
Berlex shall, within thirty (30) business days after such
exercise, reimburse Anthra for all costs and expenses incurred
by Anthra in connection with the development of such tablet
form of the Product. In the event that Anthra and Leiras
decide not to develop a tablet form of the Product, then
either party may seek to negotiate a license pursuant to
Section 13.8.
(j) The provisions of this Section 13 shall constitute the
exclusive obligations of Leiras or any member of the Schering
Group to Anthra and the exclusive rights of Anthra in respect
of any claim of patent infringement referred to in Section
13.3.
<PAGE> 60
23. BERLEX OBLIGATION NOT TO COMPETE
In the event that Berlex does not exercise the Option, then (i) during
the term of this Agreement and for one year thereafter if this Agreement is
terminated by Anthra in accordance with Section 18.2(b) or 18.3(b), Berlex shall
not, and shall not permit any of the Schering Group to, sell, Market or
distribute in the Territory disodium clodronate in any dosage forms, and (ii)
for a period of five years after Launch of the Product in the Territory, Berlex
shall not, and shall not permit any of the Schering Group to (A) sell, Market or
distribute in the Territory any competing bisphosphonate product that has been
internally developed by the Schering Group, or (B) actively solicit from any
third party any in-licensing opportunity to sell, Market or distribute a
competing bisphosphonate product in the Territory.
24. PROMOTIONAL MATERIAL
(a) Anthra shall furnish Leiras with copies of all brochures,
pamphlets or other documents relating to the Product which are
developed, produced or used by Anthra in connection with the
distribution, sale, promotion or Marketing of the Product and
should Leiras not object within ten (10) working days, such
material is deemed to be approved by Leiras. Any objection by
Leiras shall be directed either to (i) scientific or technical
accuracy or completeness, or (ii) in the event any reference
to the Trademark is made, objections as to form or quality
taking into account the goodwill associated with the
Trademark. Anthra agrees not to use any such material, or any
labels, printed packaging materials, advertising or other
promotional and similar materials without such approval except
that layout and pictures (but not text) may be reformatted by
Anthra without Leiras' prior review. Any such approval shall
be valid only for 12 months or such shorter period as may be
designated by Leiras.
<PAGE> 61
(b) Leiras shall make available to Anthra, for information and
reference purposes only, copies of brochures, pamphlets,
instructions or other published documents of material
importance, and marketing materials of a general nature
relating to the Product which it distributes to customers
outside the Territory.
25. FORCE MAJEURE
(a) Definition. "Force Majeure" shall mean all events which are
beyond the control of the parties to this Development
Agreement, and which are unforeseen, unavoidable or
insurmountable, and which arise after the Effective Date and
which prevent total or partial performance by a party. Such
events shall include earthquakes; typhoons; flood; fire; war;
failure or delay on land, water or air transportation;
governmental prohibition or restriction; strikes or other
labor disputes; shortage of labor, fuel, power or energy;
technical failures; or any other instances which cannot be
foreseen, prevented or controlled, including instances which
are accepted as force majeure in general international
commercial practice. Without limitation on the foregoing,
Force Majeure shall include inability to obtain suitable
materials, components or equipment to sustain the quality of
the Product, or inability to manufacture, supply, Market,
distribute or sell the Product, on commercially practicable
terms.
(b) Suspension. If an event of Force Majeure occurs, a party's
contractual obligations affected by such an event under this
Development Agreement shall be suspended during the period of
delay caused by the Force Majeure and shall be automatically
extended, without penalty, for a period equal to such
suspension.
<PAGE> 62
(c) Informing. The party claiming Force Majeure shall promptly
inform the other party in writing and shall furnish within 15
days thereafter sufficient proof of the occurrence and
duration of such Force Majeure. The party claiming Force
Majeure shall also use all reasonable endeavors to terminate
the Force Majeure.
(d) Consulting. In the event of Force Majeure, the parties shall
immediately consult with each other in order to find an
equitable solution and shall use all reasonable endeavors to
minimize the consequences of such Force Majeure.
26. COMPLIANCE WITH APPLICABLE LAWS
Anthra agrees that, prior to exercise of the Option and thereafter in
the event the Option is not exercised, and Berlex agrees that after exercise of
the Option, it shall, at its own cost, comply and cause its Affiliates and
sublicensees to comply, with all applicable laws, rules, regulations, NDAs and
SNDAs in the Territory relating to the import, Marketing, sale, stock, use and
distribution of the Product, all applicable safety laws and regulations relating
to the Product, and all applicable laws and regulations relating to advertising
and promotional material for the Product. Further, after exercise of the Option
and until transfer of the IND, NDA and any SNDA to Berlex in accordance with
Section 4.10, Anthra shall at its own cost, comply with all of the foregoing
laws, rules, regulations, NDAs and SNDAs to the extent applicable in respect of
its maintenance rights reserved under Section 6.1 (a) and (e).
27. TERM AND TERMINATION
(a) Term
Unless earlier terminated in accordance with the provisions set forth
below, this Development Agreement shall have immediate force and effect on the
Effective Date and shall remain in effect for a period of fifteen (15) years.
<PAGE> 63
(b) Termination for Material Breach.
(i) This Development Agreement shall be subject to
termination by Berlex or Leiras, as the case may be,
in the event of a material breach hereof or of the
Manufacturing Agreement by Anthra, which breach is
not cured within sixty (60) days (or, in the case of
a payment default, ten (10) business days) following
written notice thereof by Berlex or Leiras,
respectively.
(ii) This Agreement shall be subject to termination by
Anthra in the event of a material breach hereof or of
the Manufacturing Agreement by Berlex or Leiras, as
the case may be, which breach is not cured within
sixty (60) days (or, in the case of a payment
default, ten (10) business days) following written
notice thereof to Berlex and Leiras by Anthra.
(c) Termination for Other Events.
(i) Berlex or Leiras may terminate this Agreement upon
thirty (30) days' prior written notice to Anthra if,
at any time, Anthra shall file in any court or agency
pursuant to any statute or regulation of any state or
country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the
appointment of a receiver or trustee of that party or
of its assets, or if Anthra proposes a written
agreement of composition or extension of its debts,
or if Anthra shall be served with an involuntary
petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed
within sixty (60) days after the filing thereof, or
if Anthra shall propose or be a party to any
dissolution or liquidation, or if Anthra shall make
an assignment for the benefit of its creditors.
<PAGE> 64
(B) In the event that, at any time during the period
between the Effective Date and the later to occur of (A) the
date of FDA approval of an NDA for AD 32, a doxorubicin
derivative, for one or more indications pursuant to an
application filed by Anthra, and (B) the date of EMEA approval
of AD 32 for one or more indications pursuant to an
application filed by Anthra (the "Certification Period"),
Anthra's total Shareholders' Equity (or irrevocable
commitments therefor) is less than USD 5,000,000 or cash and
cash equivalents (or irrevocable commitments therefor) are
less than USD 5,000,000, Leiras and Berlex may terminate this
Development Agreement upon ten (10) days prior written notice
to Anthra, in the event that Anthra shall fail to remedy such
short fall and meet such criteria during such ten-day period.
In the event of such termination, upon Anthra's compliance
with its obligations under Section 18.6, and compliance with
its obligations under the Manufacturing Agreement to pay any
accrued amounts payable to Leiras thereunder, Leiras agrees to
reimburse Anthra for the out of pocket development costs
reasonably incurred by Anthra under Article 4. Anthra will
provide Leiras and Berlex on a monthly basis during the
Certification Period a statement signed by Anthra's CFO that
Anthra's financial standing meets the above criteria. Should
Anthra become aware of any circumstance which would make it
reasonably likely that Anthra would fail to meet such
criteria, Leiras and Berlex will be notified by Anthra's CFO
within two (2) business days. Nothing herein shall modify or
amend any other rights of Berlex or Anthra under this
Development Agreement with respect to termination or otherwise
in the event of material breach or other event. Shareholders'
Equity shall be determined in accordance with generally
accepted accounting principles.
(ii) Anthra may terminate this Agreement upon thirty days'
prior written notice to Leiras and Berlex if, at any
time, Leiras or Berlex shall file in any court or
agency pursuant to any statute or regulation of any
state or country, a petition in bankruptcy or
insolvency or for reorganization or for an
arrangement or for the appointment of a receiver or
trustee of that party or of its assets, or if Leiras
or Berlex proposes a written agreement of composition
or extension of its debts, or Leiras or Berlex shall
be served with an involuntary petition against it,
filed in any insolvency proceeding, and such petition
shall not be dismissed within sixty (60) days after
the filing thereof, or if Leiras or Berlex shall
propose
<PAGE> 65
or be a party to any dissolution or liquidation, or
if Leiras or Berlex shall make an assignment for the
benefit of its creditors.
(d) Leiras and Berlex, if it exercises the Option or if it
exercises its right of first refusal under Section 6.2(b),
shall have the further right to terminate this Development
Agreement immediately, on written notice to Anthra if there
shall be a change of ownership in Anthra such that fifty (50)
per cent or more of its shares of stock are owned or
controlled by an entity which is a competitor of Leiras or
Berlex in the bisphosphonate business in the Territory.
(e) Any rights or licenses granted to Anthra under this
Development Agreement shall, at Leiras' option, on written
notice to Anthra, revert to Leiras and this Development
Agreement shall terminate, if (1) Anthra has not filed an NDA
for one of the Indications on or before February 15, 2002,
provided that such failure is not due to any delay or failure
by Leiras, or (2) if between enrollment of the first patient
into a study for one of the Indications, under a protocol for
which an Anthra-sponsored amendment has been approved by the
Institutional Review Body for all study locations, and
completion of the accrual of patients into the last such
clinical trial for such Indication, there is a period of 3
months in which no patients are enrolled.
(f) Upon the termination of this Development Agreement by Leiras
or Berlex in accordance with the provisions of Section 18.2,
18.3, 18.4, 18.5 or 18.7:
(A) Anthra shall return immediately to Leiras or
another member of the Schering Group all clinical studies and
other information, including but not limited to Technology,
disclosed to Anthra by Leiras or such other member of the
Schering Group, respectively, without retaining copies thereof
(other than one copy for archival purposes to be used only in
the event of a dispute under this Development Agreement or for
FDA compliance purposes) and Anthra shall
<PAGE> 66
immediately cease Marketing, distribution and sale of the
Product and shall have no right to use such studies and other
confidential information without the prior written
authorization of Leiras;
(B) Anthra shall transfer to Leiras any IND,
investigational new drug application, NDA and SNDA obtained by
Anthra in connection with this Development Agreement; and
(C) Anthra shall assign or license, as the case may
be, to Leiras all rights to the Improvements required to be
assigned or licensed under Section 10.1 and not previously
assigned or licensed.
(g) Termination for Safety. Leiras, Berlex or Anthra shall
terminate this Development Agreement in the event they
reasonably determine by written agreement of all parties, that
termination is required for reasons related to the safety of
the Product, except that Anthra's agreement shall not be
required if the Option has been exercised or if Berlex shall
have exercised its right of first refusal under Section
6.2(b). In the event of such termination, Anthra shall, at the
request of Leiras, relinquish, and shall cause its
sublicensees to relinquish, all of their respective rights
hereunder and assign, and cause its sublicensees to assign, to
Leiras, without additional consideration, all of their
respective rights, titles and interests, if any, to the
Product, including, without limitation, all rights to the
Improvements.
(h) Termination under any of the provisions of Section 18 shall be
without prejudice to any other rights or remedies for failure
to meet obligations under this Agreement, but in no event
whatsoever shall Leiras, Anthra or Berlex be entitled to any
compensation for loss of profits or business, or for any other
incidental, indirect or consequential damages arising out of,
or in connection with, their respective obligations under this
Development Agreement. The foregoing limitation shall not
apply to any damages payable by any Leiras Indemnitee,
<PAGE> 67
Anthra Indemnitee or Berlex Indemnitee in connection with a
suit, investigation, claim or demand under Sections 10.5, 10.6
or 10.7, respectively.
(i) The provisions of Articles 6.1(g)(4) (in the event of
termination by Anthra pursuant to Section 18.2(b)), 14 (in the
event of termination by Anthra pursuant to Section 18.2(b)),
13 (with respect to actions commenced prior to expiration or
termination of this Development Agreement), 21 (with respect
to obligations to report), Articles 7, 8, 10.1 and 10.2 (in
respect of Improvements generated prior to termination), 11,
12, 19, 20, and 22 and Sections 18.6, 18.7, 18.8 and this
Section 18.9 shall survive the expiration or termination of
this Development Agreement.
28. APPLICABLE LAW
The validity, interpretation and implementation of this Development
Agreement shall be governed by the internal laws of the State of New York,
without regard to the choice of law provisions thereof. The parties hereto
expressly exclude application hereto of the U.N. Convention on Contracts for the
International Sale of Goods.
29. ARBITRATION
Any controversy or claim arising out of or relating to this Development
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association to
be held in New York, New York, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. There shall
be three arbitrators appointed. Anthra, on the one hand, and Leiras, on the
other hand, shall each appoint one such arbitrator, and the two arbitrators
shall appoint a third arbitrator; provided, however, if the controversy or claim
is between Berlex and Anthra, Berlex shall appoint an arbitrator in place of
Leiras. If the party-appointed arbitrators
<PAGE> 68
cannot agree on the third arbitrator, the third arbitrator shall be appointed in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. All proceedings under this Section 20 shall be conducted in English
in New York, New York, or a such other location as the parties may agree. All
arbitration rulings and awards shall be final and binding on the parties. The
losing party shall bear the cost of conducting the arbitration, but each party
shall otherwise bear its own expenses thereof, including, without limitation,
its own legal fees.
30. ADVERSE EVENTS
The parties shall notify each other of the adverse events in accordance
with the procedure set out on Exhibit 21.
31. MISCELLANEOUS
(a) No party may assign any of its rights and obligations under
this Development Agreement without the prior written consent
of the other parties, except that Leiras or Berlex may assign
its rights to another member of the Schering Group. Further,
Anthra may, without the prior written consent of the other
parties, assign its rights to another Anthra Affiliate, so
long as (i) such Affiliate assumes in writing satisfactory to
Leiras and Berlex all of Anthra's obligations hereunder, (ii)
such assignment is valid only for the period of time during
which such Affiliate remains an Affiliate (as defined in
Section 1.2 of this Agreement) and such limitation is
acknowledged in writing by the Affiliate, and (iii) the
clinical trials, studies or other development activities under
Section 4.1 and the obligations under Sections 4.4, 4.6 and
4.7, 4.10 and 4.11 shall continue to be conducted directly by
or under the direct supervision of Anthra, and (iv) such
assignment shall not release Anthra from any of its
obligations under this Agreement. Anthra
<PAGE> 69
and such Affiliate shall execute and deliver to Leiras such
further documents as Leiras may reasonably require to confirm
their compliance with the requirements hereunder of any such
assignment. Any assignment or transfer in violation hereof
shall be void.
(b) Any part or provision of this Development Agreement which may
be held for any reason to be illegal, invalid, unenforceable
in or in conflict with the applicable laws or regulations
shall be ineffective to the extent of such illegality,
invalidity, unenforceability or conflict, and shall be
replaced by the parties with a part or provision that
accomplishes, to the extent possible, the original commercial
purpose and economic benefit of such part or provision in a
valid and enforceable manner, without affecting, impairing or
invalidating the remaining provisions, which provisions shall
remain binding upon the parties hereto and in full force and
effect.
(c) This Development Agreement together with the Manufacturing
Agreement constitute the entire agreement between the Parties
with respect to the subject matter hereof, supersede any prior
expression of intent or understanding relating hereto and may
only be modified or amended by a written instrument signed by
the authorized representatives of the parties.
(d) This Development Agreement does not designate any party hereto
the agent, partner or legal representative of any other party
for any purpose whatsoever, and the business conducted by each
party pursuant to this Development Agreement with third
parties shall be wholly at its own risk and account as an
independent contractor. No party is granted any right or
authority to assume or create any
<PAGE> 70
obligation or responsibility, express or implied, on behalf of
or in the name of any other or to bind any other in any manner
whatsoever.
(e) Failure or delay on the part of any party hereto to exercise
any right, power or privilege under this Development Agreement
shall not operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege preclude any
other future exercise thereof.
(f) All notices given by a party to the other shall be in writing
in English and sent by courier service delivered letter, or by
facsimile, cable, telex or telefax (copies of which are to be
subsequently forwarded as confirmation by courier service
delivered letter), the other party's address as indicated
below or any other address notified in lieu thereof. All
notices shall be effective upon receipt.
Leiras
To: Leiras Oy
Pansiontie 47
P.O. Box 415
Fin-20101 Turku
Finland
Attention: Legal Department
Telecopier No.: 011 358 2 333 2465
Anthra
To: Anthra Pharmaceuticals Inc.
19 Carson Road
Princeton, New Jersey 08540
Attention: Michael Walker, CEO
Telecopier No.: 1-609-924-3875
Berlex
To: Berlex Laboratories, Inc.
<PAGE> 71
340 Changebridge Road
Montville, New Jersey 07045-1000
Attention: Legal Department
Telecopier No.: 1-973-276-2005
IN WITNESS WHEREOF, the parties hereto have caused this Development
Agreement to be executed by their duly authorized representatives as of the date
first above written.
LEIRAS OY
By:______________________________________________
Name:
Title:
BERLEX LABORATORIES, INC.
By:______________________________________________
Name:
Title:
ANTHRA PHARMACEUTICALS, INC.
By:______________________________________________
Name:
Title:
<PAGE> 72
EXHIBIT B
MANUFACTURING AGREEMENT
between
LEIRAS OY
and
ANTHRA PHARMACEUTICALS, INC.
Dated: ___________________ 1998
<PAGE> 73
MANUFACTURING AGREEMENT
This Manufacturing Agreement is made this ____ day of __________, 1998
between LEIRAS OY, a Finnish corporation with offices at Pansiontie 47,
FIN-20101 Turku Finland (hereinafter referred to as "Leiras") and ANTHRA
PHARMACEUTICALS, INC., a Delaware corporation with offices at 19 Carson Road,
Princeton, New Jersey 08540 (hereinafter referred to as "Anthra").
W I T N E S S E T H
WHEREAS, the parties hereto have signed a Term Sheet dated December 12,
1997 pursuant to which they have agreed to enter into negotiations for the
manufacture by Leiras for sale to Anthra, and purchase by Anthra from Leiras of
dosage forms containing as the active ingredient disodium clodronate for
development and marketing, distribution and sale by Anthra in the United States
of America; and
WHEREAS, pursuant thereto, among other things, Leiras and Anthra have
agreed to such manufacture and sale and purchase, in accordance with the terms
and conditions herein set forth; and
WHEREAS, Leiras, Berlex Laboratories, Inc. ("Berlex") and Anthra have
entered into a Development and Commercialization Agreement of even date
herewith, as contemplated by the Term Sheet.
NOW THEREFORE, the parties hereto hereby agree as follows:
32. DEFINITIONS
The following terms in the Manufacturing Agreement shall have the
following meanings:
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<PAGE> 74
(a) "Affiliate" shall mean any entity which, directly or
indirectly, is Controlled by, or under common Control with, an
entity referred to.
(b) "Control" shall mean the power to direct or cause the
direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract,
resolution, regulation or otherwise.
(c) "Development Agreement" shall mean the Development and
Commercialization Agreement of even date herewith among
Berlex, Leiras and Anthra.
(d) "FDA" shall mean the Food and Drug Administration of the U.S.
Department of Health and Human Services, and any successor
agency having substantially the same functions.
(e) "GMP" shall mean the current Good Manufacturing Practices set
forth from time to time by the FDA.
(f) "H-Indication" shall mean the treatment of hypercalcemia in
humans due to malignancy.
(g) "IAS" shall mean the international accounting standards
promulgated by the International Accounting Standards
Committee.
(h) "Indications" shall mean the H-Indication and the O-Indication
in humans.
(i) "Market" or "Marketing" shall mean all programs and activities
relating to the promotion and sale of the Product in the
Territory, including but not limited to advertising, seminars,
symposia, training and education, as well as detailing,
selling, contracting for sale of, and distributing the
Product.
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<PAGE> 75
(j) "Net Sales" shall mean the amount invoiced for the Product by
Anthra and, if it sublicenses the selling rights, its
sublicensees (hereinafter "the selling party"), to third
parties in the Territory, less reasonable and customary
deductions applicable for (i) transportation charges and
charges such as insurance, relating thereto paid by the
selling party; (ii) sales and excise taxes or customs duties
paid by the selling party and any other governmental charge
imposed upon the sale of the product and paid by the selling
party; (iii) distributors' discounts, rebates or allowances
actually granted, allowed or incurred; (iv) quantity
discounts, cash discounts or chargebacks actually granted,
allowed or incurred in the ordinary course of business in
connection with the sale of the product; (v) allowances or
credits to customers, not in excess of the selling price of
the product, on account of governmental requirements,
rejection, outdating, recalls or return of the product, and
(vi) costs of customer programs such as cost-effectiveness or
patient assistance programs designed to aid in patient
compliance to maintain medication schedules, for the purpose
of securing managed care contracts (to the extent that such
programs directly result in incremental Product sales);
provided, however, that any deduction pursuant to clause (vi)
shall be prorated over the term of the relevant contracts.
Notwithstanding anything to the contrary contained in the
foregoing sentence, Net Sales to customers other than U.S.
governmental entities and state programs for indigent patients
shall be deemed in the aggregate to be not less than eighty
percent (80%) of the selling party's published wholesale price
multiplied by the number of units of Product sold to customers
in the Territory,
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<PAGE> 76
less deductions for freight, postage, shipping and insurance
to the extent included in such wholesale price.
For the purpose of calculating a selling party's Net Sales, the parties
recognize that (a) a selling party's customers may include persons in
the chain of commerce who enter into agreements with a selling party as
to price even though title to the product does not pass directly from a
selling party to such customers, and even though payment for such
product is not made by such customers directly to a selling party and
(b) in such cases chargebacks listed above and paid by a selling party
to or through a third party (such as a wholesaler) can be deducted by a
selling party from gross revenue in order to calculate Net Sales. Any
deductions listed above which involve a payment by a selling party
shall be taken as a deduction against aggregate sales for the period in
which the payment is made. Sale of the product between Anthra and its
sublicensees solely for research or clinical testing purposes shall be
excluded from the computation of Net Sales. Net Sales will be accounted
for in accordance with IAS.
(k) "O-Indication" shall mean the treatment of osteolysis
(osteolytic bone metastases) in humans.
(l) "Option" shall mean the option granted by Anthra to Berlex as
defined in Section 5A.1 of the Development Agreement.
(m) "Person" shall mean an individual, sole proprietorship,
partnership, limited partnership, limited liability
partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association,
joint venture or other similar entity or organization,
including, without limitation, a government or political
subdivision, department or agency of a government.
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<PAGE> 77
(n) "Product" shall mean disodium clodronate, in the finished
dosage forms listed and conforming to the Specifications which
are set forth, in Exhibit 1.14.
(o) "Schering Group" shall mean Schering AG and its Affiliates,
including, but not limited to, Leiras and Berlex.
(p) "Specifications" shall mean the specifications for the Product
as set forth in Exhibit 1.14 hereto.
(q) "Territory" shall mean the United States of America, and its
territories and possessions and the Commonwealth of Puerto
Rico.
(r) "Transfer Date" shall mean the date of the transfer and
assignment of Anthra's rights to Berlex under Section 5A.1(e)
of the Development Agreement, in the event Berlex exercises
its Option.
33. SUPPLY OF THE PRODUCT
(a) Requirements. Subject to Section 11, Leiras agrees to sell to
Anthra, and Anthra agrees to buy, all of Anthra's requirements
of the Product for the Territory exclusively from Leiras. All
such Product shall be used exclusively in accordance with the
terms and conditions, and subject to the limitations, set
forth in the Development Agreement. In no event shall Anthra
offer for resale, sell, market or distribute the Product other
than for the Indications licensed to Anthra for the Territory
under the terms of the Development Agreement, or such other
indications as may be mutually agreed in writing between
Leiras and Anthra in accordance with the terms thereof;
provided however that Anthra shall not be in breach of this
Section 2.1 by reason of physician-initiated off-label use of
the Product not authorized by Anthra or its sublicensees.
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<PAGE> 78
(b) Competing Products. Further, Anthra or its sublicensee(s)
shall not, directly or indirectly, sell, Market or distribute
in the Territory any disodium clodronate in dosage forms other
than those for the Product (unless purchased from Leiras) or
any bisphosphonate product that competes with the Product. The
parties acknowledge that the restrictions contained herein are
reasonable, valid and necessary for the adequate protection of
the Product business.
34. SPECIFICATIONS
Leiras shall supply the Product in accordance with GMP requirements and
the Specifications.
35. WARRANTY
(a) Each party represents and warrants to the other parties as
follows: (i) it is a duly organized and validly existing
corporation under the laws of its jurisdiction of
incorporation; (ii) it has full corporate power and authority
and has taken all corporate action necessary to enter into and
perform this Manufacturing Agreement; (iii) the execution and
delivery of this Manufacturing Agreement and the transactions
contemplated herein do not violate, conflict with, or
constitute a default under its charter or similar organization
document, its bylaws or the terms or provisions of any
material agreement or other instrument to which it is a party
or by which it is bound, or any order, award, judgment or
decree to which it is a party or by which it is bound; and
(iv) this Manufacturing Agreement is its legal, valid and
binding obligation, enforceable in accordance with the terms
and conditions thereof.
(b) Warranty.
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<PAGE> 79
(i) Leiras warrants to Anthra only that, at the time of
delivery of the Product to Anthra, the Product (i)
will have been manufactured, packaged and stored in
accordance with applicable GMPs and all other
applicable laws, rules and regulations, (ii) will
have been manufactured, packaged and stored in
accordance with the Specifications and the applicable
NDA, (iii) will not be adulterated or misbranded
within the meaning of the Federal Food, Drug, and
Cosmetic Act, codified at 21 U.S.C. 301 et seq., as
amended ("FFDCA"), (iv) will not constitute an
article which may not under the provisions of Section
505 of the FFDCA, be introduced into interstate
commerce, and (v) for capsules only, will have
expiration dating not less than twenty-four (24)
months, and for vials not less than eighteen (18)
months, on the date of delivery thereof to Anthra.
(ii) Anthra warrants to Leiras that any labelling,
branding or instructions which it may request Leiras
to place on, with or in connection with the Product
shall be in compliance with the applicable NDA, and
the provisions of the FFDCA and all other applicable
laws, rules and regulations. Leiras shall not be in
breach of its warranty under paragraph (a) of this
Section 4.2 by reason of any such labelling, branding
or instructions, which accompany Product delivered in
accordance with the Specifications.
(c) Remedy. Subject to the provisions of Section 4.5, Anthra's
exclusive remedy and Leiras's sole liability for any claim
involving Product sold to Anthra hereunder, whether in
contract, tort, strict liability or under any other theory, is
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<PAGE> 80
expressly limited to replacement of the specific quantity of
Product supplied by Leiras shown to be other than as
warranted, as soon as commercially practicable, but not later
than ninety (90) days after (i) Leiras agrees in writing to
the nonconformity, if it does, or (ii) the independent testing
laboratory referred to below makes a determination, whichever
is earlier. Any replacement is conditional on Anthra giving
Leiras notice of any such claim (including a sample from the
shipment) within twenty (20) days from receipt of delivery or,
in the case of defects which cannot be discovered by the
exercise of reasonable diligence, (which shall not include
laboratory testing, or other chemical analysis, unless
required by the NDA), twenty (20) days from the date of
discovery of the defect. Anthra agrees to conduct all routine
laboratory testing and other chemical analysis of shipments of
Product within forty-five (45) days after receipt thereof. If
Leiras confirms such non-conformity, it shall promptly so
notify Anthra. If Leiras does not confirm such non-conformity,
it shall promptly so notify Anthra, and the parties shall
submit the disputed shipment for testing to an independent
testing laboratory that is mutually acceptable to the parties.
The findings of the testing laboratory shall be binding on the
parties. The expenses of such testing shall be borne by Leiras
if the testing confirms the non-conformity, and otherwise by
Anthra. Failure by Anthra to give this notice within the
respective twenty (20) day periods shall constitute a waiver
by Anthra of all claims with respect to such Product under
this Section 4.3. If required by Leiras, all non-conforming
Product in the possession of Anthra and which is the subject
of such a claim shall be returned to Leiras and Leiras will
pay the return freight and insurance charges.
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(d) Disclaimer. EXCEPT AS SET FORTH IN SECTIONS 4.2 and 4.3,
LEIRAS HEREBY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER
WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, WITH RESPECT TO THE
PRODUCT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
QUALITY, PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE.
(e) Leiras Indemnity. Subject to the provisions of Section 4.7,
Leiras shall indemnify and hold Anthra and its officers,
directors, employees, agents, representatives and consultants
(each a Leiras "Indemnitee"), harmless from and against any
and all losses, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees) (collectively
"Losses") incurred or payable by any Leiras Indemnitee in
connection with any and all suits, investigations, claims or
demands by third parties (whether based on death, personal
injury or otherwise, and whether or not a proceeding is
commenced against, or names as a party thereto, any Leiras
Indemnitee), arising out of any breach of Leiras' warranties
as set forth in Section 4.2.
(f) Anthra Indemnity. Subject to the provisions of Section 4.7,
Anthra shall indemnify and hold Leiras and its officers,
directors, employees, agents, representatives and consultants
(each an Anthra "Indemnitee"), harmless from and against any
and all Losses, incurred or payable by any Anthra Indemnitee
in connection with any and all suits, investigations, claims
or demands by third parties (whether based on death, personal
injury or otherwise, and whether or not a proceeding is
commenced against, or names as a party thereto, any Anthra
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Indemnitee), (A) arising out of or in connection with (i) any
breach by Anthra or any of its sublicensees of any of their
respective obligations under this Manufacturing Agreement, or
(ii) any other action or failure to act on the part of Anthra
or any of its sublicensees, or (B) otherwise arising out of or
in connection with the development, marketing, distribution,
sale or use of the Product in the Territory, other than (x)
resulting from a breach of Leiras' warranty under Section 4.2
hereof or (y) to the extent caused by modification of, or
tampering with, the Product by an intentional third party
intervention.
In the event that Berlex exercises its Option, then from and after
Transfer Date, Anthra shall be relieved of its obligation of indemnity
to Leiras under subpart (B) (but not subpart (A)) of this Section 4.6
in respect of all Losses arising out of or in connection with (i)
development, Marketing, distribution or sale of the Product after the
Transfer Date, or (ii) use of the Product Marketed, distributed or sold
after the Transfer Date, except that Anthra's indemnity under subpart
(B) shall remain in full force and effect with respect to any Losses
arising out of, or in connection with the exercise or non-exercise by
Anthra of any of the rights retained by Anthra under Section 6.1(a) or
6.1(e) of the Development Agreement.
(g) Indemnification Procedure.
(i) Each Indemnitee agrees to give the indemnifying party
prompt written notice of any Losses or the discovery
of a fact upon which such Indemnitee intends to base
a request for indemnification under Section 4.5 or
4.6.
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(ii) The indemnifying party and the Indemnitee shall each
furnish promptly to the other, copies of all claims
or demands and official documents received in respect
of any Losses. The Indemnitee shall cooperate as
reasonably requested by the indemnifying party in the
defense against any Losses, subject to the right of
the Indemnitee to retain its own counsel at its own
expense.
(iii) With respect to any Losses relating solely to the
payment of money damages and which will not result in
the Indemnitee becoming subject to injunctive or
other relief or otherwise adversely affecting the
business of the Indemnitee in any manner, and as to
which the indemnifying party shall have acknowledged
in writing the obligation to indemnify the Indemnitee
hereunder, the indemnifying party shall have the sole
right to defend, settle or otherwise dispose of such
Losses, on such terms as the Indemnifying party, in
its sole discretion, shall deem appropriate.
(iv) With respect to Losses relating to all other matters
as to which the indemnifying party shall have
acknowledged in writing the obligation to indemnify
the Indemnitee hereunder, the indemnifying party
shall have the sole right to control the defense of
such matter, provided that the indemnifying party
shall obtain the written consent of the Indemnitee,
which shall not be unreasonably withheld, prior to
ceasing to defend, settling or otherwise disposing of
any Losses if as a result thereof (i) the Indemnitee
would become subject to injunctive or other equitable
relief or
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any remedy other than the payment of money by the
indemnifying party or (ii) the business of the
Indemnitee would be adversely affected.
(v) The Indemnitee shall have the right to control the
defense of all other matters, provided that the
indemnifying party shall not be liable for any
settlement or other disposition of a Loss by the
Indemnitee which is reached without the written
consent of the indemnifying party, which consent
shall not be unreasonably withheld.
(vi) Except as provided above, the costs and expenses,
including reasonable fees and disbursements of
counsel, incurred by any Indemnitee in connection
with any claim shall be reimbursed on a calendar
quarter basis by the indemnifying party, without
prejudice to the Indemnitee's right to contest the
indemnifying party's right to indemnification and
subject to refund in the event the indemnifying party
is ultimately held not to be obligated to indemnify
the Indemnitee.
(h) Limitation. In no event shall either Leiras or Anthra be
liable to the other for Losses in respect of a suit,
investigation, claim or demand to the extent of which Leiras
or Anthra, respectively, has previously indemnified the other
under the Development Agreement.
36. QUALITY CONTROL, REGULATORY MATTERS
(a) Leiras shall perform its obligations under this Agreement in
compliance with the Specifications, the applicable NDA or
SNDA, applicable GMPs, and any other applicable laws, rules
and regulations.
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(b) Leiras Information. Leiras shall, at Anthra's request, provide
Anthra with such CMC-related information and assistance as may
be required under FDA rules and regulations for purposes of
maintaining the NDA and any applicable SNDAs for the Product
in the Territory, including, without limitation, providing
Anthra with all required reports, certificates, specifications
and other documentation in the possession or under the control
of Leiras relating to the Product or any component thereof.
Leiras shall not be requested to provide such assistance for
more than ten (10) person days. Should Leiras not be in
position to disclose to Anthra information required by the
FDA, Leiras shall be entitled to make such information
available directly to the FDA on Anthra's behalf. Leiras
hereby grants Anthra a royalty-free license to use such
information in the Territory only for the purpose of
maintaining any and all such regulatory filings in connection
with the Product.
(c) Specification Changes. Either party may, in writing, propose
to the other changes in the Specifications. A change shall not
take effect unless agreed in writing by both parties, except
if required in order to comply with applicable laws and is
technically feasible and commercially practicable, and the
cost of making the change, and complying with any additional
regulatory requirements shall be borne by the party requesting
the change, except that if required to comply with applicable
law, then Anthra shall in any case bear the cost.
(d) Equipment Changes. Leiras agrees not to make material changes
in any equipment, materials, or methods of production or
testing, or the facility used in the manufacture of the
Product, without providing sufficient prior written notice
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thereof to Anthra to permit required amendments to the NDA or
SNDA to be made without delaying Marketing or sales of the
Product. Leiras shall bear the cost of making any such change
and making any regulatory submissions required in connection
therewith, except that, if the FDA or other regulatory
authority acting for the FDA requires a change in any
equipment, materials or methods of production or testing or
facility, then Anthra shall bear the cost of making such
change and regulatory submissions relating to such change.
(e) Atypical Events. Leiras agrees to report to Anthra, without
delay, process events that are likely materially to affect the
safety, efficacy or regulatory status of the Product in the
Territory.
(f) Anthra Visits. Anthra shall have the right, not more than once
per year, during normal business hours and with reasonable
advance notice, and (in its sole discretion) in the company of
representatives of one or more third parties to which Anthra
has granted a license to market and sell the Product, to visit
the Leiras manufacturing facility for the Product for the
purpose of observing the manufacturing, packaging, testing,
and storage of the Product, and to inspect for compliance with
GMPs and other applicable regulatory requirements and review
records relevant to such compliance.
(g) FDA Inquiries. Leiras agrees to notify Anthra as soon as
practicable but no later than fifteen (15) working days after
the initiation of any inquiries, notifications, or inspection
activity by the FDA or any other United States governmental
authority, or authority acting on behalf of the United States
governmental authority, with regard to the Product. Further,
Leiras shall provide a
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reasonable description to Anthra of any such governmental
inquiries or notifications promptly (but in no event later
than 15 calendar days) after such inquiry. Leiras shall
furnish to Anthra, (a) within 15 days after receipt, any
report or correspondence issued by the FDA or any other such
authority in connection with such inquiry, including but not
limited to, any FDA Form 483, Establishment Inspection Report,
or warning letter, and (b) prior to submission (if
practicable) or at the time of submission thereof by Leiras,
copies of any and all responses or explanations to any such
authority relating to items set forth above, in each case
purged only of trade secrets of Leiras that are unrelated to
its obligations under this Agreement and are unrelated to the
Product. Leiras agrees to consider Anthra's reasonable views
and requests, if timely received, prior to submission of such
reports and communications to any such authority. Further,
Leiras agrees that Anthra may disclose to one or more third
parties to which Anthra has granted a license to market and
sell the Product the information and documentation provided to
Anthra pursuant to this Section 5.7.
(h) Adverse Events. The parties shall notify each other of adverse
events in accordance with the procedure set forth in Exhibit
5.9 hereto.
(i) Debarment. Leiras represents and warrants that it has not been
debarred and is not subject to debarment and that it will not
use in any capacity, in connection with the services to be
performed under this Agreement, any person who has been
debarred pursuant to section 306 of the Federal Food, Drug,
and Cosmetic Act, 21 U.S.C. 335a, or who is the subject of a
conviction described in such. Leiras agrees to inform Anthra
in writing immediately if it or any other person who is
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performing services hereunder is debarred or is the subject of
a conviction described in section 306, or if any action, suit,
claim, investigation, or legal or administrative proceeding is
pending or, to the best of Leiras' knowledge, is threatened,
relating to the debarment or conviction of Leiras or any
person performing services hereunder.
37. PRODUCT RECALL
(a) Notification. In the event that any governmental agency or
authority issues or requests a recall or takes similar action
in connection with the Product, or in the event that either
party determines an event, incident or circumstance has
occurred which may result in the need for a recall or market
withdrawal, the party notified of or desiring such recall or
similar action shall within twenty-four (24) hours, advise the
other parties thereof by telephone or facsimile, and the
parties shall determine an appropriate course of action,
including the respective responsibilities of the parties with
respect to any recall.
(b) Recall Action. Following notification of a recall, within
forty-eight (48) hours, the parties' representatives from
business, medical, regulatory, quality assurance and legal
functions (and any others deemed necessary by a party) shall
discuss whether or not to conduct a recall (except in the case
of a government-mandated recall), and if so, the timing of the
recall, the breadth, extent and level of customer to which the
recall shall reach, the strategies and notifications to be
used, and other related issues. Nothing in this Section 6
shall prohibit either party from taking action required to
comply with applicable law.
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(c) Recall Expenses. Anthra shall bear the expenses of any recall,
unless such recall results from breach of Leiras' warranty
under Section 4.2. Such expenses of recall shall include,
without limitation, the direct expenses of notification and
destruction or return of the recalled Product and any refund
to consumers of amounts paid for the recalled Product.
38. PRICE AND PAYMENT TERMS
(a) Actual Purchase Price. Leiras shall sell each formulation,
dosage form and quantity of the Product to Anthra at a price
(the "Actual Purchase Price") equal to the higher of (a)
thirty-two and one-half percent (32 1/2%) of the weighted
average unit Net Sales price thereof in each calendar
half-year of the term hereof ("Average Purchase Price"), and
(b) the floor prices for such formulation, dosage form and
quantity determined in accordance with Exhibit 7.1. Leiras
agrees to enter into further good faith negotiations with
Anthra at its request, with respect to the floor prices, in
the event Anthra demonstrates a material change in the
competitive market situation or in the event of an entry by
another directly competing disodium clodronate product by a
third party. Leiras agrees to use commercially reasonable
efforts to supply the Product to Anthra at a price that
supports Anthra's efforts to maintain a competitive price for
the Product, but Leiras shall be under no obligation to revise
the floor prices, and no revisions shall take effect unless
and until the parties shall agree thereto in a mutually
satisfactory written agreement.
(b) Initial Purchase Price. The parties shall agree on an initial
purchase price ("Initial Purchase Price") to be used for each
formulation, dosage form and
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quantity of the Product for purposes of the payments due to
Leiras for the first calendar half-year in which there is a
Launch of the Product, subject to adjustment as hereinafter
provided. Each Initial Purchase Price for such period shall be
determined ninety (90) days prior to Launch by agreement based
on the projected weighted average unit Net Sales price
therefor for such calendar quarter but in no event less than
the floor prices set out on Exhibit 7.1.
(c) Subsequent Determinations. The parties shall agree on new
Initial Purchase Prices for each subsequent calendar half-year
at least ninety (90) days prior thereto, based upon Anthra's
good faith estimation, determined in accordance with its
regular budgeting process, of its weighted average unit Net
Sales price for such calendar half-year, but in no event less
than the floor price for the Product under Article 7.1 and
Exhibit 7.1. Should the parties not reach an agreement for any
such calendar half-year on such Initial Purchase Price, the
Initial Purchase Price for the applicable calendar half-year
shall be the weighted average unit Net Sales Price of the
calendar half-year ending six (6) months prior thereto. Leiras
agrees to invoice Anthra promptly upon shipment of the
Product.
(d) Adjusted Payments. Payment of the applicable Initial Purchase
Price for each delivery of Product shall be made within sixty
(60) days from the later of the date of invoice or the date of
delivery. Within sixty (60) days of the end of each calendar
half-year, Anthra shall prepare an accounting of the weighted
average unit Net Sales price for [each formulation, dosage
form and quantity of] the Product sold during such half-year
and shall forward such accounting to Leiras together with an
additional payment if the Initial Purchase Price has been less
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than such price, If the Initial Purchase Price has been
greater than such price, Leiras shall provide Anthra a
quantity of Product free of charge in the amount of such
shortfall. Each accounting shall contain at least the
following information separately on each dosage form: the
total amount of Product sold, returned and the reasons for
returns; the dollar volume of sales and returns; and the price
of each return, sale and itemized deductions from sales.
(e) Wire Transfer. All payments to be made by Anthra to Leiras
under this Manufacturing Agreement shall be made in United
States Dollars and shall be made by wire transfer to such bank
account as shall be specified in writing five (5) days in
advance by Leiras.
(f) Withholding Taxes. Anthra shall pay to the proper taxing
authority any and all withholding taxes or similar charges
imposed by any governmental unit in the Territory on any
amounts due to Leiras from Anthra pursuant to this Section 7,
and shall use commercially reasonable efforts to obtain and
send to Leiras proof of such payment of such taxes or charges.
All amounts paid by Anthra pursuant to this Section 7.6 shall
be paid for the account of Leiras and deducted from the
amounts due from Anthra to Leiras pursuant to this Section 7.
39. VERIFICATION
(a) Anthra Books and Records. Anthra shall keep, and shall require
its sublicensees to keep, accurate and complete books and
records, maintained in accordance with IAS, of all Product
sold, including the quantities and sale prices, and any
deductions therefrom, together with copies of invoices and
other relevant
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documents showing all orders placed and executed. All such
books and records shall be kept for six (6) years.
(b) Leiras Books and Records. Leiras shall keep accurate and
complete books and records, maintained in accordance with IAS,
of all costs and expenses of establishing and maintaining the
Second Source, and, of any Products manufactured by the Second
Source for customers of Leiras other than Anthra. Leiras shall
continue to keep such books and records for six (6) years.
(c) Inspection. Each party shall permit the other party's
independent public accountants at reasonable times during
normal business hours to inspect and take copies of or
extracts from any relevant documents in the possession or
under the control of such party for the purpose of reporting
to the other party with respect to verification of the
information in Section 8.1 or 8.2 hereof, as the case may be,
and subject to such accountants agreeing to the
confidentiality provisions of Section 13 hereof or
substantially similar provisions as to confidentiality. Upon
Leiras' request not more frequently than annually, Anthra
shall arrange for its certified public accountant to inspect
relevant documents of Anthra's sublicensees and provide to
Leiras a written certification that the sublicensees are in
compliance with the calculation of Net Sales in accordance
with Section 1.10. Each party shall bear the expense of its
own certified public accountant with respect to any inspection
hereunder.
40. ORDERING AND DELIVERY
(a) Forecasts.
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(i) Anthra shall submit to Leiras at least one hundred and eighty
(180) days prior to the commencement of each calendar quarter
a rolling forecast for the following four (4) quarters showing
the estimated quantities of the Product needed for such
quarters. Leiras agrees to supply up to 120% of the latest
forecast for the first quarter of each such forecast. Anthra
agrees to order at least 80% of the latest forecast for such
quarter, but Leiras shall use commercially reasonable efforts
within its available capacity to deliver orders placed up to
150% of the latest forecast for such first quarter.
(ii) In addition to the above, Anthra shall also provide Leiras on
an annual basis on or before September 1 with a sales forecast
for the coming two (2) calendar years. Such forecast shall not
be binding on either party.
(b) Ordering; Minimum Quantities.
(i) All orders shall be placed by Anthra at least ninety
(90) days prior to the requested delivery date. All
orders shall be placed in whole production batch
quantities, as specified on Exhibit 9.2(a). Leiras
will confirm its delivery dates within ten (10) days
of receipt of the order.
(ii) Except as expressly set forth in Section 9.2 (a)
hereof, orders presented by Anthra shall bind Leiras
and Anthra only after written confirmation of
acceptance thereof by Leiras.
(iii) Leiras shall supply, and Anthra shall purchase, take
delivery and pay for a minimum quantity of the
Product in each calendar year of the term of this
Manufacturing Agreement equal to the product of fifty
(50)
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per cent and the quantity of the Product projected to
be sold in such year by Anthra and its sublicensees,
as determined by the independent third party for the
purposes of calculating the Minimum Royalty pursuant
to Section 1.19(c) of the Development Agreement. Such
quantity shall be prorated for any portion of a year.
(c) Delivery. The Product shall be delivered by Leiras,
accompanied by a certificate of analysis, in accordance with
the terms ex works Leiras, Turku, Finland (Incoterms 1990).
Leiras shall not be obligated to deliver Product more than
once per calendar quarter. Without affecting risk of loss or
liability or risk allocation under such terms, Leiras agrees,
upon Anthra's request, to arrange for shipping and insurance,
if available, of the Product at the expense of Anthra, by
carriers selected by Anthra.
41. HANDLING, STORING AND TRANSPORTATION
The Product shall be handled, transported and stored at all times in
accordance with the Specifications and instructions attached hereto as Exhibit
10.
42. SECOND SOURCE
(a) Establishment. Subject to this Section 11.1, Anthra shall
purchase its requirements of the Product only from Leiras.
However, in the event that (i) the Option Period shall have
expired and the Option has not been exercised by Berlex, (ii)
Leiras or a Leiras Affiliate shall not have established and
qualified a second site of its own for disodium clodronate,
and (iii) for any reason Leiras is not able to supply at least
fifty percent (50%) of Anthra's requirements of Product
ordered for two consecutive calendar quarters thereafter,
then, unless prior to the
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end of the second such calendar quarter Berlex shall have
exercised its right of first refusal in accordance with
Section 6.2(b) of the Development Agreement, Anthra shall be
free to purchase its requirements of disodium clodronate for
the Product from a third party, herein called the "Second
Source", subject to the conditions set forth below. Anthra may
purchase from the Second Source only such quantities of
disodium clodronate for the Product which Leiras is not able
to supply and shall commence repurchasing its requirements of
Product incorporating Leiras disodium clodronate from Leiras
immediately after a written notice from Leiras that it is able
to recommence the supply, provided however that for a period
of up to twenty-four (24) months from such notice, during
which Anthra shall use its best efforts to purchase from
Leiras as much of its requirements as possible, Anthra may,
subject to such best efforts, purchase a portion of its
requirements of disodium clodronate for the Product from the
Second Source, as follows: in the first six (6) months, it may
purchase up to fifty percent (50%) of its requirements; in the
second six (6) months, it may purchase up to twenty-five
percent (25%) of its requirements; and in the last twelve (12)
months, it is agreed that the portion of its requirements
shall be scaled-down from twenty-five percent (25%) to five
percent (5%) on a basis to be negotiated in good faith by
Anthra with Leiras. After the twenty-four (24) months expire,
Anthra shall continue to use its best efforts to purchase from
Leiras as much of its requirements as possible, but Anthra
may, subject to such best efforts, continue to purchase the
five percent (5%), as long as Anthra pays to Leiras on a
calendar quarterly basis (x) an amount equal to the profit
Leiras would have made on such
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five percent (5%) disodium clodronate and (y) any additional
costs and expenses incurred by Leiras as a result of using
Second Source disodium clodronate instead of its own disodium
clodronate.
(b) Costs and Expenses. Subject to Section 11.1, Anthra and Leiras
shall both agree in writing on the Second Source, provided
however that Leiras shall not unreasonably withhold its
agreement and provided further that Anthra shall not establish
and qualify another party as the Second Source on terms for
the purchase by Anthra of disodium clodronate more favorable
than such terms offered to Schering Group; if a Second Source
is proposed, such proposal shall be made no earlier than the
date of expiration of the Option Period, and Anthra shall
first give Leiras written notice thereof, setting forth the
terms in detail, and Schering Group shall have a right of
first refusal, exercisable on written notice to Anthra within
ninety (90) days after receipt of Anthra's notice. All the
costs and expenses of establishing and maintaining the Second
Source as a back-up facility shall be borne by Anthra. Leiras
shall reasonably cooperate with Anthra, at Anthra's cost and
expense, in establishing the Second Source, and, in
particular, Leiras shall grant Anthra a limited nonexclusive
royalty-free license during the term of this Agreement only,
under Leiras' patents and technology required for manufacture
of the disodium clodronate only by the Second Source for
Anthra, and Anthra may sublicense the Second Source
thereunder, subject to the Second Source agreeing in writing
with Anthra (i) to keep the necessary technology confidential
in all material respects and (ii) to use the sublicense only
in making Product for supply to Anthra in the Territory under
the conditions of this Article
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11. Anthra covenants and warrants to Leiras that any such
Second Source shall comply with such agreement of 11.2 (i) and
(ii), and any breach thereof by the Second Source shall,
without limiting Leiras' remedies against the Second Source,
constitute a material breach of Anthra's obligations under
this Manufacturing Agreement provided however that a single
breach by the Second Source during the term of this
Manufacturing Agreement not exceeding twenty kilograms from
one lot of Product shall not constitute a material breach
hereof by Anthra. Anthra shall provide Leiras with a true copy
of any purchase agreement it has with the Second Source, and
Leiras shall be provided with full access to the books and
records of the Second Source and inspection rights consistent
with Sections 8.1 and 8.3 hereof for the purpose of verifying
compliance with the provisions hereof. Anthra further warrants
that the disodium clodronate made by the Second Source (i)
will have been manufactured, packaged and stored in accordance
with applicable GMPs and all other applicable laws, rules and
regulations, (ii) will have been manufactured, packaged and
stored in accordance with the specifications therefor and the
applicable NDA, (iii) will not be adulterated or misbranded
within the meaning of under the Federal Food, Drug and
Cosmetic Act, 21 USC 301 et seq., as amended ("FFDCA"), and
(iv) will not constitute an article which may not, under the
provisions of Section 505 of the FFDCA be introduced into
interstate commerce, and any breach of such warranty shall
constitute a breach of Anthra's obligations under this
Manufacturing Agreement. Leiras shall not be required to
provide more than ten person days of assistance to Anthra or
the Second Source in connection with such cooperation.
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Notwithstanding the aforesaid, in the event that Leiras shall
use the Second Source for manufacturing of the Product in
significant commercial quantities for customers of Leiras
other than Anthra during the term of this Manufacturing
Agreement, then Leiras agrees to reimburse Anthra for fifty
percent (50%) of the agreed costs of setting up the Second
Source. For this purpose, "significant commercial quantities"
shall mean the quantities required by Leiras for one full
production batch of the Product. Leiras shall be entitled to
be supplied disodium clodronate by the Second Source at no
cost for manufacture of the Product for Anthra under this
Manufacturing Agreement, and purchases of disodium clodronate
by Anthra from the Second Source shall be made available by
Anthra to Leiras for such manufacture by Leiras of the Product
for Anthra on a first priority basis, so that if Leiras is
able to manufacture the Product from disodium clodronate, but
its ability to make disodium clodronate has been interrupted,
Anthra shall, notwithstanding any other provision of Section
11, purchase its requirements of the Product from Leiras. The
Actual Purchase Price of the Product shall be reduced by
Leiras' standard manufacturing cost of the disodium clodronate
and the related margin to the extent provided at no cost to
Leiras. The parties shall discuss in good faith the procedure
for manufacture of the Product by another person if, and
during the period that, Leiras is unable to do so.
Leiras shall conduct laboratory testing and chemical analysis of Second
Source disodium clodronate supplied to Leiras, and Anthra shall arrange
for the Second Source to replace any disodium clodronate which does not
meet the specifications therefor or is otherwise defective, but nothing
herein shall relieve Anthra from any liability for all
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such disodium clodronate and Leiras shall, as provided by Section 11.3,
have no liability in respect thereof.
(c) Liability. Leiras shall have no liability whatsoever for any
product supplied to Anthra or Leiras by the Second Source and
Anthra expressly assumes liability for all such products
including without limitation to any claim involving such
products whether in contract, tort, strict liability or
otherwise. All claims shall be subject to Anthra's Indemnity
under clause 4.6.
(d) Anthra's right to purchase from a Second Source (or to
purchase the Product from Leiras), subject to and in
accordance with the provisions of this Section 11 shall
constitute Anthra's exclusive remedy for any non-delivery of
the Product under the other terms and conditions of the
Manufacturing Agreement.
43. PROPRIETARY RIGHTS AND INFRINGEMENT
Leiras hereby represents and warrants to Anthra that:
(a) (i) Leiras is the owner of the entire right, title and interest in
and to the United States patents and patent applications
listed in Exhibit 12.1 (i) and to the extent set forth in
Exhibit 12.1. (i) hereto (collectively, the "Patents");
(B) Leiras is not aware of any claim of infringement of,
or interference with, any of the Patents in the
Territory by a third party;
(C) Leiras is not aware of any legal or administrative
actions, proceedings, judgments or settlements,
including, without limitation, any reexamination or
reissue proceedings, currently pending with respect
to the Patents, and no such actions or proceedings of
which Leiras is aware have been threatened against
Leiras in the Territory;
(D) Leiras is not aware of any prior art or event not
cited or disclosed during prosecution of the Patents
which was required to be cited or disclosed therein.
(E) Leiras is not aware of any third party patent (or
patent application) in the Territory, the claims of
which cover the manufacturing, use or sale of the
Product under the Technology.
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For purposes of determining whether Leiras is "aware" of any
matter hereinabove referred to only the actual knowledge of
any senior executive or of the Head of Leiras' Patent
Department shall be considered, and it does not mean that any
investigation or inquiry has been conducted. Furthermore,
Anthra has inspected Leiras' patent file regarding the Product
as indexed in the Exhibit 12.1 and anything Anthra could have
seen in the patent file is not included in the above
representations.
(b) Except as set forth in Section 12.1, Leiras does not make, and
hereby excludes, any and all express or implied, written or
unwritten, representations or warranties against patent
infringement with respect to the Products supplied by Leiras
hereunder.
(c) Upon knowledge of the commencement of any suit against Leiras
or Anthra which is based in whole or in part on a claim that
any Products supplied by Leiras hereunder or under the
Development Agreement and Marketed, sold or distributed by
Anthra under its license from Leiras under the Development
Agreement, constitutes an infringement of any United States
patent, Leiras or Anthra, as the case may be, shall promptly
notify the other in writing. Subject to clause 12.6 hereof,
Leiras shall, with counsel reasonably acceptable to Anthra,
assume and conduct the defense of any suit or claims brought
or asserted, or demand made, against Leiras or Anthra insofar
as it is based on such claim of infringement. The damages and
costs awarded as a result of such suit or the amount of any
settlement in respect of such suit, claim or demand shall be
paid by Leiras subject to reimbursement by Anthra as provided
in clause 12.6. Leiras agrees to consider,
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but shall not be obligated to accept, any reasonable offer by
the claimant of a license to the allegedly infringing patent.
(d) With respect to any suit, claim or demand that is subject to
the indemnity set forth in this Article 12, (i) Anthra shall
be advised periodically with respect to all strategy and
proceedings conducted by Leiras under clause 12.3, (ii) Anthra
may, at Anthra's expense, participate in the defense thereof
through counsel selected by Anthra if Anthra's interests may
be affected thereby, and (iii) Anthra shall have the right to
consent to any proposed settlement thereof, which consent
shall not be unreasonably withheld.
(e) Anthra agrees to take all action reasonably requested by
Leiras to assist Leiras in connection with the defense and
settlement of any suit, claim or demand under subsection 12.3
hereof.
(f) Anthra shall, within thirty (30) days upon being invoiced
therefor by Leiras, pay to Leiras sixty-seven and a half
percent (67.5 %) of (x) any costs and expenses incurred by
Leiras in defending any suit or claim under clause 12.3, (y)
any lump sum damages to the date of any judgment and costs
awarded as a result of such suit or paid in settlement of such
suit, claim or demand (with Anthra's approval, as required
under clause 12.4), and (z) any royalties awarded as a result
of such suit or paid in settlement of such suit, claim or
demand (with Anthra's approval, as required under clause 12.4)
provided however that after the aggregate of all costs,
expenses, damages and royalties under clauses (x), (y) and (z)
and corresponding clauses (x), (y) and (z) of Section 12.5 of
the Development Agreement reaches 9,230,769 dollars (and
Anthra's sixty-seven and a half percent
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(67.5 %) share has reached 6,230,769 dollars), then thereafter
Anthra shall be responsible for reimbursing Leiras for one
hundred percent (100%) of all further costs, expenses, damages
and royalties enumerated under both such clauses (x), (y) and
(z), if any. Anthra shall take all appropriate action to
minimize damages which may be assessed in any such suit,
including, without limitation, accepting any reasonable
reformulation of the Product which Leiras, it its reasonable
option, may determine to be required.
(g) The provisions of Sections 12.3 through 12.6 and the last
sentence of Section 12.8 shall not apply in the event that
Berlex exercises its Option, except that, any claim of
infringement made under 35 USC Section 271(e)(2) by reason of
any application filed by Anthra with the FDA shall be
considered to be included under Sections 12.3 through 12.7.
(h) Anthra has advised Leiras that Anthra will obtain from its
patent counsel an opinion as to whether Marketing or sale of
the Product in the Territory may infringe Boehringer Mannheim
("BM"), U.S. patent no. 4,859,472. Following receipt of the
opinion of Anthra patent counsel, Anthra will furnish Leiras
with a copy thereof and Leiras, Leiras' patent counsel, Anthra
and Anthra's patent counsel shall consult with each other, and
if the opinion of Anthra patent counsel or Leiras patent
counsel, or both, is that there is or may be infringement,
then, either Leiras or Anthra may, by written notice to the
other, advise the other that it is necessary or desirable to
obtain a license with respect to the Product under such patent
from BM for the Territory. Thereafter either Leiras or Anthra
may commence negotiations with BM with the objective of
obtaining such license for
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both Leiras and Anthra and their respective Affiliates, and
Leiras and Anthra shall cooperate in such negotiations and
each shall allow the other, to the extent practicable, to
participate in its negotiations. Any license negotiated shall
provide for a royalty not to exceed five percent (5%) of Net
Sales of Products with no upfront cash payment, unless
otherwise mutually agreed by the parties. As between Leiras
and Anthra, Leiras shall be liable for 32.5% of the royalties
and Anthra shall be liable for 67.5% of the royalties, and the
royalties shall be counted as royalties under Section 12.6
clause (z) of this Manufacturing Agreement and corresponding
Section 13.6 clause (z) of the Development Agreement for
purposes of determining when the aggregate of 9,230,769 US
Dollars under Sections 12.6 and 13.6 thereof, respectively,
has been reached, and thereafter, Anthra, in addition to its
other obligations thereunder, shall be liable for one hundred
percent (100%) of the royalties due to BM under the license.
(i) Leiras undertakes to use commercially reasonable efforts to
complete a biostudy of the tablet form of the Product by March
31, 1999. Upon completing such study, Leiras agrees promptly
to provide Anthra with the data and analysis thereof. In the
event that the parties mutually agree to develop a tablet form
of the Product, then Anthra shall be responsible for the
clinical development work in connection therewith in the
Territory, and Leiras shall prepare the CMC Data therefor. The
parties agree to share equally the costs of any license that
is required to be obtained from any third party, including
without limitation Penwest Pharmaceutical Co., in connection
with the manufacture, marketing or sale of any such tablet
formulation in the Territory. In the event that Berlex
exercises the
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Option, then in all events such rights in and to such
development work shall inure to the benefit of Berlex and
Berlex shall, within thirty (30) business days after such
exercise, reimburse Anthra for all costs and expenses incurred
by Anthra in connection with the development of such tablet
form of the Product. In the event that Anthra and Leiras
decide not to develop a tablet form of the Product, then
either party may seek to negotiate a license pursuant to
Section 12.8.
(j) The provisions of this Section 12 shall constitute the
exclusive obligations of Leiras or any member of the Schering
Group to Anthra and the exclusive rights of Anthra in respect
of any claim of patent infringement referred to in Section
12.3.
44. CONFIDENTIAL INFORMATION
(a) Confidential Information. Except to the extent permitted by
this Section 13 or as otherwise agreed by the parties in
writing, the parties agree that, at all times during the term
of this Agreement and for thirty (30) years thereafter, the
party receiving information hereunder (the "Receiving Party")
shall keep completely confidential, shall not publish or
otherwise disclose and shall not use directly or indirectly
for any purpose any information furnished to it by another
party (the "Disclosing Party") pursuant to this Agreement or
otherwise relating to any transaction contemplated hereby,
including Information heretofore furnished to it (the
"Confidential Information"), except to the extent that the
Receiving Party can establish by competent proof that such
information:
(i) was already known to the Receiving Party, other than
under an obligation of confidentiality, at the time
of disclosure by the Disclosing Party, as evidenced
by the Receiving Party's prior written records;
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(ii) was part of the public domain at the time of its
disclosure by the Disclosing Party;
(iii) became part of the public domain after its disclosure
by the Disclosing Party, other than through any act
or omission of the Receiving Party in breach of this
Agreement; or
(iv) was disclosed to the Receiving Party by a third party
who had no obligation not to disclose such
information to others.
(b) Authorized Disclosure. Each party may disclose Confidential
Information to the extent that such disclosure is:
(i) Made in response to a valid order of a court of
competent jurisdiction or other governmental body of
a country or any political subdivision thereof of
competent jurisdiction; provided, however, that the
Receiving Party shall first have given notice to the
Disclosing Party and given the Disclosing Party a
reasonable opportunity to quash such order and to
obtain a protective order requiring that the
Confidential Information and/or documents that are
the subject of such order be held in confidence by
such court or agency or, if disclosed, be used only
for the purposes for which the order was issued; and
provided further that if a disclosure order is not
quashed or a protective order is not obtained, the
Confidential Information disclosed in response to
such court or governmental order shall be limited to
that information which is legally required to be
disclosed in such response to such court or
governmental order;
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(ii) Otherwise required by law, in the opinion of legal
counsel to the Receiving Party as expressed in an
opinion letter in form and substance reasonably
satisfactory to the Disclosing Party, which shall be
provided to the Disclosing Party at least forty-eight
(48) hours prior to the Receiving Party's disclosure
of the Confidential Information pursuant to this
Section 13.2(b);
(iii) Made by the Receiving Party to the FDA as required in
connection with NDA and SNDA submissions for the
Product, provided that reasonable measures shall be
taken to assure confidential treatment of such
Information; or
(iv) Made by the Receiving Party to third parties as may
be necessary in connection with the development and
commercialization of the Product as contemplated by
this Agreement, including, without limitation,
subcontracting and sublicensing transactions in
connection therewith, provided that the Receiving
Party in question shall in each case obtain from the
proposed third party recipient a written
confidentiality undertaking containing
confidentiality obligations no less onerous than
those set forth in this Section 13.
(c) Public Announcements. No party hereto shall make any public
announcements regarding this Agreement or the transactions
contemplated hereby without the written consent of the other
party; provided, however, that each party shall be entitled to
disclose information to the extent required to comply with
applicable securities laws, including those relating to
initial public offerings. The
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disclosing party shall be solely responsible for the accuracy
and completeness of any such disclosure. Except as required by
law, no party to this Agreement shall use the name of the
other party in any public announcement, press release or other
public document without the prior written consent of such
other party.
(d) Notification. The Receiving Party shall notify the Disclosing
Party immediately, and cooperate with the Disclosing Party as
the Disclosing Party may reasonably request, upon the
Receiving Party's discovery of any loss or compromise of the
Disclosing Party's Confidential Information.
(e) Remedies. Each party agrees that the unauthorized use or
disclosure of any material Confidential Information by the
Receiving Party in violation of this Agreement will cause
severe and irreparable damage to the Disclosing Party. In the
event of any violation of this Section 13, the Receiving Party
agrees that the Disclosing Party shall be authorized and
entitled to obtain from any court of competent jurisdiction
injunctive relief, whether preliminary or permanent, as well
as any other relief permitted by applicable law. The Receiving
Party agrees to waive any requirement that the Disclosing
Party post a bond as a condition for obtaining any such
relief.
45. FORCE MAJEURE
(a) Definition. "Force Majeure" shall mean all events which are
beyond the control of the parties to this Manufacturing
Agreement, and which are unforeseen, unavoidable or
insurmountable, and which arise after the date hereof and
which prevent total or partial performance by a party. Such
events shall include earthquakes; typhoons; flood; fire; war;
failure or delay on land, water or air
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transportation; governmental prohibition or restriction;
strikes or other labor disputes; shortage of labor, fuel,
power or energy; technical failures; or any other instances
which cannot be foreseen, prevented or controlled, including
instances which are accepted as force majeure in general
international commercial practice. Without limitation on the
foregoing, Force Majeure shall include inability to obtain
suitable materials, components or equipment to sustain the
quality of the Product, or inability to manufacture, supply,
Market, distribute or sell the Product, on commercially
practicable terms.
(b) Suspension. If an event of Force Majeure occurs, a party's
contractual obligations affected by such an event under this
Manufacturing Agreement shall be suspended during the period
of delay caused by the Force Majeure and shall be
automatically extended, without penalty, for a period equal to
such suspension.
(c) Informing. The party claiming Force Majeure shall promptly
inform the other party in writing and shall furnish within 15
days thereafter sufficient proof of the occurrence and
duration of such Force Majeure. The party claiming Force
Majeure shall also use all reasonable endeavors to terminate
the Force Majeure.
(d) Consulting. In the event of Force Majeure, the parties shall
immediately consult with each other in order to find an
equitable solution and shall use all reasonable endeavors to
minimize the consequences of such Force Majeure.
46. TERM AND TERMINATION
(a) Term. This Manufacturing Agreement shall have immediate force
and effect on the date hereof and, unless earlier terminated
pursuant to this Section 15, shall remain in effect until
fifteen (15) years after the date of expiration of the Option
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Period under the Development Agreement, and thereafter unless
terminated by either party on two (2) years' prior notice
effective at the end of such fifteen (15) year period or any
anniversary thereof.
(b) Unilateral Termination by Either Party. Either party shall
have the right to terminate this Manufacturing Agreement,
immediately on written notice to the other, under any of the
following circumstances:
(i) if the other party has failed to make a payment due
under this Manufacturing Agreement or under the
Development Agreement, and such failure is not cured
within ten (10) days after written notice to the
party whose payment is due;
(ii) if the other party has committed a material breach of
any other provision of this Manufacturing Agreement
or the Development Agreement and such breach is not
cured within sixty (60) days after written notice to
the party in breach; or
(iii) if the other party shall file in any court or agency
pursuant to any statute or regulation of any state or
country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the
appointment of a receiver or trustee of that party or
of its assets, or proposes a written agreement of
composition or extension of its debts, or shall be
served with an involuntary petition against it, filed
in any insolvency proceeding, and such petition shall
not be dismissed within sixty (60) days after the
filing thereof, or shall propose or be a party to any
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dissolution or liquidation, or shall make an
assignment for the benefit of its creditors.
(c) Leiras Termination Rights. Leiras shall have the further right
to terminate this Manufacturing Agreement immediately, on
written notice to Anthra, if (a) the Development Agreement has
been terminated by Leiras in accordance with Sections
18.3(a)(ii), 18.5 or 18.7, (b) there shall be a change of
ownership in Anthra such that fifty (50) per cent or more of
its shares of voting stock are owned or controlled by an
entity which is a competitor of Leiras or Berlex in the
Territory, or (c) in the event Berlex exercises its Option.
(d) Anthra Termination Right. Anthra shall have the further right
to terminate this Manufacturing Agreement immediately, on
written notice to Leiras, if (a) the Development Agreement has
been terminated by Anthra in accordance with Section 18.7
thereof, or (b) in the event Berlex exercises its Option.
(e) Moneys Due. Upon expiration or termination of this
Manufacturing Agreement any moneys accrued, due and payable by
one party to the other party hereunder shall be fully paid
within one (1) month.
(f) Leiras License. If Leiras terminates this Manufacturing
Agreement in accordance with Section 15.1 hereof, or Anthra
terminates the Manufacturing Agreement in accordance with
Section 15.2 hereof, then Leiras shall within thirty (30) days
after the effective date of such termination, grant to Anthra
or a third party designated by Anthra a nonexclusive perpetual
license under the Leiras' patents and technology required for
the manufacture of the Product in the Territory for sale in
the Territory to Anthra or a third party designated by Anthra,
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at a royalty equal to five percent (5%) of Net Sales of the
Product manufactured using such patents and technology,
payable for a period of ten years after the date of such
transfer, provided, however, that such royalty per unit of the
Product shall not exceed the difference between (i) the
weighted average unit Net Sales price in effect for sales of
the Product from Leiras to Anthra for the six (6) months prior
to the date of termination and (ii) the Net Sales price
charged to Anthra by such third party, as the case may be, and
provided further that the minimum payment to Leiras during the
first year of the license shall be an amount equal to all of
Leiras reasonable costs and expenses incurred by Leiras in
licensing the technology to Anthra or such third party. After
the date that a generic version of disodium clodronate shall
be marketed and sold in significant commercial quantities in
the Territory, no such royalty shall be payable; provided,
however, that Anthra shall reimburse all reasonable costs and
expenses incurred by Leiras in licensing such technology to
Anthra or such third party. Such technology license shall be
based on the assumption of use by the third party of machinery
and equipment, raw materials and reagents similar to those
used by Leiras. Leiras shall, upon Anthra's request, provide
not more than ten person-days of technical assistance to
Anthra or such third party in connection with such license.
(g) Survival. The provisions of Articles 4, 6 (with respect to the
Product supplied to Anthra by Leiras), 8, 12 (with respect to
actions commenced prior to expiration or termination of this
Manufacturing Agreement), 13, 16 and 17 and Sections 15.5,
15.6, 15.8, 16, 17 and 18 and this 15.7 shall survive the
expiration or termination of this Manufacturing Agreement.
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(h) Limitation of Liability. Termination under any of the
provisions of Section 15 shall be without prejudice to any
other rights or remedies for failure to meet obligations under
this Agreement, but in no event whatsoever shall Leiras or
Anthra be entitled to any compensation for loss of profits or
business, or for any other incidental, indirect or
consequential damages arising out of, or in connection with,
their respective obligations under this Manufacturing
Agreement. The foregoing limitation shall not apply to any
damages payable by any Leiras Indemnitee or Anthra Indemnitee
in connection with a suit, investigation, claim or demand
under Sections 4.5 or 4.6, respectively.
47. APPLICABLE LAW
The validity, interpretation and implementation of this Manufacturing
Agreement shall be governed by the internal laws of the State of New
York, without regard to the choice of law provisions thereof. The
parties hereto expressly exclude application hereto of the U.N.
Convention on Contracts for the International Sale of Goods.
48. ARBITRATION
Any controversy or claim arising out of or relating to this
Manufacturing Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association to be held in New York, New York, and
judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. There shall be three arbitrators
appointed. Anthra, on the one hand, and Leiras, on the other hand,
shall each appoint one such arbitrator, and the two arbitrators shall
appoint a third arbitrator. If the party-appointed arbitrators cannot
agree on the third arbitrator, the third arbitrator shall be appointed
in accordance
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with the Commercial Arbitration Rules of the American Arbitration
Association. All proceedings under this Section 17 shall be conducted
in English in New York, New York, or at such other location as the
parties may agree. All arbitration rulings and awards shall be final
and binding on the parties. The losing party shall bear the cost of
conducting the arbitration, but each party shall otherwise bear its own
expenses thereof, including, without limitation, its own legal fees.
49. COMPLIANCE WITH LAWS
Anthra shall, in the performance of its obligations under this
Agreement, comply and shall cause its Affiliates and sublicensees to
comply, with all applicable laws, rules, regulations, NDAs and SNDAs
relating to the Product.
50. MISCELLANEOUS
(a) Neither party may assign any of its rights and obligations
under this Manufacturing Agreement without the prior written
consent of the other party, except that Leiras may assign its
rights to another member of the Schering Group. Further,
Anthra may, without the prior written consent of Leiras,
assign its rights to another Anthra Affiliate, so long as (i)
such Affiliate assumes in writing satisfactory to Leiras all
of Anthra's obligations hereunder, (ii) such assignment is
valid only for the period of time during which such Affiliate
remains an Affiliate (as defined in Section 1.1 of this
Agreement) and such limitation is acknowledged in writing by
the Affiliate, and (iii) such assignment shall not release
Anthra from any of its obligations under this Agreement.
Anthra and such Affiliate shall execute and deliver to Leiras
such further documents as Leiras may reasonably
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require to confirm their compliance with the requirements
hereunder of any such assignment. Any assignment or transfer
in violation hereof shall be void.
(b) Any part or provision of this Manufacturing Agreement which
may be held for any reason to be illegal, invalid,
unenforceable in or in conflict with the applicable laws or
regulations shall be ineffective to the extent of such
illegality, invalidity, unenforceability or conflict, and
shall be replaced by the parties with a part or provision that
accomplishes, to the extent possible, the original commercial
purpose and economic benefit of such part or provision in a
valid and enforceable manner, without affecting, impairing or
invalidating the remaining provisions, which provisions shall
remain binding upon the parties hereto and in full force and
effect.
(c) This Manufacturing Agreement together with the Development
Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof, supersede any prior
expression of intent or understanding relating hereto and may
only be modified or amended by a written instrument signed by
the authorized representatives of the parties.
(d) This Manufacturing Agreement does not designate either Leiras
or Anthra the agent, partner or legal representative of the
other for any purpose whatsoever, and the business conducted
by each party pursuant to this Manufacturing Agreement with
third parties shall be wholly at its own risk and account as
an independent contractor. Neither party is granted any right
or authority to assume or create any obligation or
responsibility, express or implied, on behalf of or in the
name of the other or to bind the other in any manner
whatsoever.
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(e) Failure or delay on the part of either party hereto to
exercise any right, power or privilege under this
Manufacturing Agreement shall not operate as a waiver thereof;
nor shall any single or partial exercise of any right, power
or privilege preclude any other future exercise thereof.
(f) All notices given by either party to the other shall be in
writing in English and sent by courier service delivered
letter, or by facsimile, cable or telex (copies of which are
to be subsequently forwarded as confirmation by courier
service delivered letter), the other party's address as
indicated below or any other address notified in lieu thereof.
All notices shall be effective upon receipt.
Leiras
To: Leiras Oy
Pansiontie 47
P.O. Box 415
Fin-20101 Turku
Finland
Attention: Legal Department
Telecopier No.: 011 358 2 333 2465
Anthra
To: Anthra Pharmaceuticals, Inc.
19 Carson Road
Princeton, New Jersey 08540
Attention: Michael Walker, CEO
Telecopier No.: 1-609-924-3875
(g) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original,
and both of which, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
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LEIRAS OY
By:
------------------------------------
Name:
Title:
ANTHRA PHARMACEUTICALS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.20
JANSSEN-MEYERS ASSOCIATES, L.P.
17 State Street
New York, NY 10004
September , 1998
Anthra Pharmaceuticals, Inc.
103 Carnegie Center, Suite 102
Princeton, NJ 08540
Attention: Michael C. Walker, President
Gentlemen:
This letter, when executed by the parties hereto, will constitute an
agreement between Anthra Pharmaceuticals, Inc. (the "Company") and
Janssen-Meyers Associates, L.P. ("JMA") pursuant to which the Company agrees to
retain JMA and JMA agrees to be retained by the Company under the terms and
conditions set forth below.
1. The Company hereby retains JMA to perform consulting services
related to corporate finance and other financial services matters, and JMA
hereby accepts such retention. In this regard, subject to the terms set forth
below, JMA shall furnish to the Company advice and recommendations with respect
to such aspects of the business and affairs of the Company as the Company shall,
from time to time, reasonably request upon reasonable notice. In addition, JMA
shall hold itself ready to assist the Company in evaluating and negotiating
particular contracts or transactions, if requested to do so by the Company, upon
reasonable notice.
2. As compensation for the services described in paragraph 1 above,
the Company shall pay to JMA a fee of $99,972, for the full term of 36 months,
payable in 36 equal monthly installments. In addition to the compensation
payable in this Section 2, the Company will reimburse JMA for any and all
reasonable expenses incurred by JMA in the performance of its duties under
paragraphs 3 or 4 hereunder, and JMA shall account for such expenses to the
Company. Such reimbursement shall accumulate and be paid monthly. No expenses in
excess of $1,000 shall be incurred or reimbursed without the prior consent of
the Company. Nothing contained herein shall prohibit JMA from receiving any
additional compensation under paragraphs 3 and 4 herein or otherwise.
<PAGE> 2
3. In addition, JMA shall hold itself ready to assist the Company in
evaluating and negotiating particular contracts or transactions, if requested to
do so by the Company, upon reasonable notice, and will undertake such
evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to JMA with respect to such evaluations
and negotiations.
4. The Company and JMA further acknowledge and agree that JMA may
act as a finder or financial consultant in various business transactions in
which the Company may be involved, such as mergers, acquisitions or joint
ventures. The Company hereby agrees that if in the event JMA shall first
introduce to the Company another party or entity, and that as a result of such
introduction, a transaction is consummated, the Company shall pay to JMA a fee
equal to five percent (5%) of the amount up to $5 million and two and one half
percent (2-1/2%) of the excess, of the consideration received by the Company
from parties introduced to the Company by JMA in any transaction (including
mergers, acquisitions, joint ventures and other business transactions)
consummated by the Company with a party introduced to the Company by JMA. Such
fee shall be paid in cash at the closing of the transaction to which it relates
or at such time as the consideration is received or paid by the Company, and
shall be payable whether or not the transaction involves stock, or a combination
of stock and cash, or is made on the installment sale basis. Notwithstanding
Section 2 of this Agreement above, this Section 4 shall remain in effect for a
term of 60 months.
5. All obligations of JMA contained herein shall be subject to JMA's
reasonable availability for such performance, in view of the nature of the
requested service and the amount of notice received. JMA shall devote such time
and effort to the performance of its duties hereunder as JMA shall determine is
reasonably necessary for such performance. JMA may look to such others for such
factual information, investment recommendations, economic advice and/or
research, upon which to base its advice to the Company hereunder, as it shall
deem appropriate. The Company shall furnish to JMA all information relevant to
the performance by JMA of its obligations under this Agreement, or particular
projects as to which JMA is acting as advisor, which will permit JMA to know all
facts material to the advice to be rendered, and all material or information
reasonably requested by JMA. In the event that the Company fails or refuses to
furnish any such material or information reasonably requested by JMA, and thus
prevents or impedes JMA's performance hereunder, any inability of JMA to perform
shall not be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or restrict the
right of JMA or of any partner, employee, agent or representative of JMA, to be
a partner, director, officer,
2
<PAGE> 3
employee, agent or representative of, or to engage in, any other business,
whether of a similar nature or not, nor to limit or restrict the right of JMA to
render services of any kind to any other corporation, firm, individual or
association.
7. JMA will hold in confidence any confidential information which
the Company provides to JMA pursuant to this Agreement unless the Company gives
JMA permission in writing to disclose such confidential information to a
specific third party. In addition, all confidential information which the
Company provided to JMA in connection with its initial public offering shall be
considered confidential information for purposes of this Agreement.
Notwithstanding the foregoing, JMA shall not be required to maintain
confidentiality with respect to information (i) which is or becomes part of the
public domain through no fault of JMA; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession of JMA in
the normal and routine course of its own business from and through independent
non-confidential sources; or (iv) which is required to be disclosed by JMA by
governmental requirements. If JMA is requested or required (by oral questions,
interrogatories, requests for information or document subpoenas, civil
investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, JMA shall, unless prohibited by law, promptly notify the
Company of such request(s) so that the Company may seek an appropriate
protective order.
8. Each of the Company and JMA agrees to indemnify and hold harmless
each other, and their respective partners, employees, agents, representatives
and controlling persons (and the officers, directors, employees, agents,
representatives and controlling persons of each of them) from and against any
and all losses, claims, damages, liabilities, costs and expenses (and all
actions, suits, proceedings or claims in respect thereof) and any legal or other
expenses in giving testimony or furnishing documents in response to a subpoena
or otherwise (including, without limitation, the cost of investigating,
preparing or defending any such action, suit, proceeding or claim, whether or
not in connection with any action, suit, proceeding or claim in which JMA or the
Company is a party), as and when incurred, directly or indirectly, caused by,
relating to, based upon or arising out of JMA's service pursuant to this
Agreement. The Company further agrees that JMA shall incur no liability to the
Company or any other party on account of this Agreement or any acts or omissions
arising out of or related to the actions of JMA relating to this Agreement or
the performance or failure to perform any services under this Agreement except
for JMA's intentional or willful misconduct. This paragraph shall survive the
termination of this Agreement. Notwithstanding the foregoing, no party otherwise
entitled to indemnification shall be entitled thereto to the extent such party
has been determined to
3
<PAGE> 4
have acted in a manner which has been deemed gross negligence or wilful
misconduct regarding the matter for which indemnification is sought herein.
9. This Agreement may not be transferred, assigned or delegated by
any of the parties hereto without the prior written consent of the other party
hereto.
10. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
11. This Agreement is for a term of thirty-six (36) months, except
for Section 4 above which shall be for a term of sixty (60) months, and may not
be terminated by the Company. This Agreement may be terminated by JMA at any
time upon 30 days notice; provided JMA shall repay any portion of their fee
which was not earned on the effective date of such termination. Paragraphs 4, 7
and 8 shall survive the expiration or termination of this Agreement under all
circumstances.
12. Any notices hereunder shall be sent to the Company and to JMA at
their respective addresses set forth above. Any notice shall be given by
registered or certified mail, postage prepaid, and shall be deemed to have been
given when deposited in the United States mail. Either party may designate any
other address to which notice shall be given, by giving written notice to the
other of such change of address in the manner herein provided.
13. (a) This Agreement shall be construed in accordance with the
laws of the State of New York, without giving effect to conflict of laws.
(b) The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (b) waives
any objection which the Company may have now or hereafter to the venue of any
such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York and the
United States District Court for the Southern District of New York in any such
suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court for
the Southern District of New York, and agrees that service of process upon the
Company mailed by certified mail to the Company's
4
<PAGE> 5
address shall be deemed in every respect effective service of process upon the
company in any such suit, action or proceeding. In the event of litigation
between the parties arising hereunder, the prevailing party shall be entitled to
costs and reasonable attorney's fees.
14. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in Section 7, and their respective heirs,
administrators, successors and permitted assigns.
5
<PAGE> 6
If you are in agreement with the foregoing, please execute two
copies of this letter in the space provided below and return them to the
undersigned.
Very truly yours,
JANSSEN/MEYERS ASSOCIATES, L.P.
BY: MEYERS/JANSSEN SECURITIES CORP.
General Partner
By_________________________________________
Bruce Meyers
Vice President
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
ANTHRA PHARMACEUTICALS, INC.
By:___________________________
Michael C. Walker
President
6
<PAGE> 1
EXHIBIT 23.1
Accountants' Consent
The Board of Directors and Stockholders
Anthra Pharmaceuticals, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
Our report dated August 12, 1998 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations, has a net
capital deficiency and has insufficient working capital to fund its current
operating requirements, which raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
/s/ KPMG PEAT MARWICK LLP
Princeton, New Jersey
September 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-END> JUN-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 795,428 2,911,953
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 833,533 2,960,593
<PP&E> 134,948 180,021
<DEPRECIATION> 58,991 88,091
<TOTAL-ASSETS> 915,038 4,099,581
<CURRENT-LIABILITIES> 1,431,369 2,326,018
<BONDS> 0 0
10,969,997 11,623,056
3,391 6,391
<COMMON> 10,655 10,655
<OTHER-SE> (11,500,374) (17,866,539)
<TOTAL-LIABILITY-AND-EQUITY> 915,038 4,099,581
<SALES> 0 0
<TOTAL-REVENUES> 1,688,115 0
<CGS> 0 0
<TOTAL-COSTS> 7,291,731 11,106,278
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (5,464,711) (10,747,015)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,464,711) (10,747,015)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,464,711) (10,747,015)
<EPS-PRIMARY> (5.79)<F1> (10.70)<F1>
<EPS-DILUTED> (5.79) (10.70)
<FN>
<F1> The information reported above under "EPS-Primary" represents basic net
loss per share for the years ended June 30, 1997 and 1998.
</FN>
</TABLE>
