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U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
AXONYX INC.
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(Name of Small Business Issuer in Its Charter)
NEVADA 86-0883978
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
750 LEXINGTON AVE. SUITE 1400, NEW YORK, NEW YORK 10022
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(Address of Principal Executive Offices) (Zip Code)
(212) 688-4770 (PHONE) (212) 688-4843 (FAX)
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(Issuer's Telephone and Fax Number)
Securities to be registered under Section 12(b) of the Act.
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK $0.001 PAR VALUE
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GLOSSARY
ACETYLCHOLINESTERASE - an enzyme that degrades the neurotransmitter
acetylcholine in the brain and other tissues of the body. Acetylcholine is a
chemical substance that sends signals between nerve cells (called
neurotransmission) and is therefore called a neurotransmitter.
Neurotransmitters are secreted by neurons (nerve cells) into the space between
neurons called the synapse. Unless degraded by an enzyme such as
acetylcholinesterase in the synapse, acetylcholine will transmit a nerve impulse
across the synapse to another neuron. Acetylcholine is a primary
neurotransmitter in the brain, and is associated with memory and cognition.
Acetylcholinesterase inhibitors such as Aricept-TM- or Phenserine are designed
to prevent the degradation of acetylcholine in the synapse by inhibiting the
enzyme that performs that function, acetylcholinesterase, and hence amplifies
the natural action of acetylcholine in the brains of AD patients.
ANALOG - one of a series of chemical substances of similar chemical structure
AMYLOID PLAQUE - amyloid proteins involved in Alzheimer's Disease and other
diseases of amyloidosis aggregate into insoluble fibrils that are deposited in
amyloid plaques in the brains of Alzheimer's patients.
BETA AMYLOID PRECURSOR PROTEIN - this protein (known as beta-APP) is encoded on
chromosome 21 and is found present in the cell wall of numerous cells within the
body including nerve cells of the brain. Beta-amyloid protein is derived from
this larger protein.
BETA-AMYLOID PROTEIN - one of more than a dozen types of amyloid proteins found
in the body, beta amyloid is normally present in the brain of healthy
individuals in small quantities. Beta-amyloid, derived from the beta-amyloid
precursor protein, is over-produced in Alzheimer's Disease and Downs Syndrome.
In Alzheimer's Disease, the beta-amyloid protein undergoes a chemical change,
aggregates and is deposited as insoluble fibrils in amyloid plaques in the
brain.
BETA-SHEET BREAKER PEPTIDE - a molecule composed of naturally occurring amino
acids, the building blocks of proteins, that is designed to bind to and prevent
the conversion of the normal form of protein to the misshapen form that forms
plaques.
BUTYRYLCHOLINESTERASE - an enzyme that is normally found in all tissues of
the body. Its function remains to be fully understood. Amongst other roles,
it degrades acetylcholine, a primary neurotransmitter in the brain.
Butyrylcholinesterase is found in high concentration in the plaques taken
from individuals who have died from Alzheimer's
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Disease. This enzyme also functions to degrade a number of drugs and natural
products and is involved in their elimination from the body.
CHOLINERGIC SYSTEM - is also called the parasympathetic nervous system; it is
involved in nerve transmission related to memory and cognition, as well as the
functioning of major organs such as the heart, lungs and gastrointestinal
system.
CORTICALLY-PROJECTING NEURONS - these are the nerve cells that connect the
mid-brain to the cortical areas in the front part of the brain where nerve
cells involved in memory and cognition are concentrated. In Alzheimer's
Disease, the loss of these connecting nerve cells result in a reduction in
the amount of the neurotransmitter acetylcholine, and the loss of mental
capacity or cognition.
NEUROBLASTOMA CELL CULTURES - these are a type of cell derived from the brain
that can be grown in containers in the lab (IN VITRO) where they are able to
reproduce and carry out many activities as if they were residing in the brain,
including the synthesis and secretion of proteins such as the beta-amyloid
peptide which, in the human brain, can cause plaques. A neuroblastoma cell
culture is used to study brain cell function in a simple IN VITRO system, which
allows testing of the ability of drug compounds to prevent the formation of the
beta-amyloid precursor protein and peptide production and secretion.
NEUROTOXIC PEPTIDE - refers to a small protein (called a peptide) that can be
toxic to neurons, and is another name for the beta-amyloid protein.
PERIPHERAL AMYLOIDOSIS - excessive production and deposition of various types of
amyloid protein can occur in other organs outside of the brain and cause damage
by interfering with important bodily functions, sometimes causing death.
PHYSOSTIGMINE - is a drug that is a classical potent acetylcholinesterase
inhibitor but which causes unpleasant side effects that have prevented its
development as a treatment for Alzheimer's Disease.
PRESYNAPTIC NEURONS - this is the nerve cell that releases a given
neurotransmitter into the synapse for transmission of a nerve impulse to a
neighboring nerve cell.
PRION - is a contraction of the descriptive term, proteinaceous infectious
proteins. Prions, unlike viruses, bacteria and fungi, have no DNA and consist
only of protein and the infectious form can cause degenerative brain diseases.
PRION-RELATED DISEASES - these are degenerative diseases of the brain that are
thought to be caused by a misshapen infectious protein called a prion. Such
diseases include Creutzfeldt Jakob Disease, new variant (CJDnv) in humans,
Bovine Spongiform Encephalopathy (BSE or Mad Cow Disease) in cows, and Scrapies
disease in sheep.
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TRANSDERMAL FORMULATION - a formulation refers to the mixture of chemical
substances used to promote the absorption of a drug. A formulation that
promotes the absorption of a drug from the skin is called a transdermal
formulation (also called a skin patch).
TABLE OF CONTENTS
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A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
B. BUSINESS STRATEGY
C. AXONYX DRUG DISCOVERY PROGRAMS
D. THE INDUSTRY AND MARKET
E. FDA MATTERS
F. STRATEGIC ALLIANCES
G. MARKETING AND SALES
H. PATENTS, TRADEMARKS, AND COPYRIGHTS
I. COMPETITION
J. EMPLOYEES
K. INDEPENDENT CONTRACTORS
L. CONSULTANTS
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A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
(Axonyx Inc. undertook a two for one stock split with a record date of February
23, 1999 and a distribution date of March 5, 1999. All information on
outstanding securities of Axonyx gives effect to this stock split except where
specifically noted.)
GENERAL
Axonyx Inc. ("Axonyx" or the "Company") is engaged in the business of
identifying and acquiring novel post-discovery central nervous system (CNS) drug
candidates to advance through clinical development towards regulatory approval.
The Company is engaged in the business of acquiring patent rights and developing
CNS pharmaceutical compounds with significant potential market impact. The
Company has acquired worldwide exclusive patent rights to three main classes of
therapeutic compounds designed for the treatment of Alzheimer's Disease (AD),
Mild Cognitive Impairment (MCI), and related diseases. The Company licensed
these patent rights from New York University (NYU) and, via a sublicense, from
the National Institutes of Health\National Institute on Aging (NIA) (the
"Licensors") and has an ongoing research and development relationship with both
Licensors.
Axonyx is developing its compounds under contract in laboratories at the
New York University School of Medicine and, through a research and development
collaboration, with the NIA's laboratories and elsewhere. In addition, Axonyx
recently entered into a Development Agreement and Right to License with a
subsidiary of Ares Serono, S.A., a Swiss pharmaceutical company, under which
Ares Serono will undertake research on certain of Axonyx's compounds for a one
year term, renewable for a second year, with a right to sublicense Axonyx's
patent rights to such compounds. Axonyx
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intends to develop other corporate partnerships with established and well
capitalized pharmaceutical companies for the clinical development of some of
its other compounds and for their production, commercialization and
marketing. The Company itself does not currently maintain any laboratory or
research premises.
Axonyx has licensed a portfolio of CNS drugs that covers three distinct
therapeutic approaches that have all demonstrated activity in treating the
causes of AD in preclinical development. Each class of compounds has a
different target and represents a unique, innovative platform for the
development of pharmaceutical products for the diagnosis and treatment of AD.
The treatment of people with AD is a multi billion-dollar industry in the
United States alone and constitutes an extremely large potential market with an
unmet therapeutic need. Currently there are only two approved drugs that
provide at best marginal symptomatic relief for one aspect of AD. One of the
Axonyx compounds, Phenserine, an acetylcholinesterase inhibitor, has shown in
preclinical studies a potential therapeutic and safety profile superior to the
products currently on the market. Axonyx's two other lead product candidates,
Cymserine, a butyrylcholinesterase inhibitor, and the Amyloid Inhibiting
Peptides (AIPs), attack the disease in other inventive and effective ways,
representing potentially new platform technologies for the treatment of AD. The
Development Agreement and Right to License with Ares Serono includes the AIPs.
The Company expects to derive its revenues from patent sub-licensing fees,
royalties from pharmaceutical sales, appropriate milestone payments, and
research and development contracts.
The Company's executive offices are located at 750 Lexington Avenue, Suite
1400, New York, New York 10022, telephone number (212) 688-4770. It also
maintains offices at 1001 4th Avenue Plaza, Suite 3228, Seattle, Washington
98154, telephone number (206) 340-0211, and at 4041 State Highway 14, Stevenson,
Washington 98648, telephone number (509) 427-5132.
The Company's fiscal year end is December 31.
BACKGROUND
The predecessor of the Company, also named Axonyx Inc., was incorporated in
Delaware on September 16, 1996. Reference to Axonyx Inc. herein refers to the
historical Axonyx Inc., a Delaware company unless the context otherwise
requires. On December 28, 1998 Axonyx Inc. merged with Ionosphere, Inc., a
Nevada corporation incorporated on July 29, 1997. While the management of
Ionosphere, Inc. ("Ionosphere") had developed a business plan under which
Ionosphere would provide marketing consulting services to restaurants and
nightclubs, and several such business opportunities were actively pursued,
Ionosphere did not perform any services for which it generated revenue.
Ionosphere had no employees and owned no patents, patent rights, trademarks or
copyrights.
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After the merger (which represented a recapitalization for accounting
purposes), Ionosphere, Inc., the surviving Nevada corporation, changed its name
to Axonyx Inc. In conjunction with the merger, Ionosphere, Inc. undertook a 1
for 2 reverse stock split on December 28, 1998. On a post merger basis, the
business of Axonyx Inc. became the business of the Company. The management and
board of directors of Axonyx Inc. became the management and directors of the
consolidated company and shareholders of Axonyx Inc. held 89.11% of the
outstanding shares of Common Stock of the consolidated company. See Item 6:
Interests of Management and Others in Certain Transactions for more details on
the merger transaction.
B. BUSINESS STRATEGY
Axonyx's plan is to: (1) identify, acquire and exploit rights to new
technologies and compounds relating to AD and other neurological disorders; (2)
enhance the value of those assets through further research and clinical testing;
(3) perform clinical studies towards regulatory approval and market its drugs
through profitable licensing agreements with major pharmaceutical companies; and
(4) work to develop other promising compounds in-house and in collaboration with
third parties such as its current Licensors at NYU and the NIA.
The Company's long term goal is to become a partially integrated
pharmaceutical company with capabilities in research, drug development, clinical
investigation, and regulatory affairs. Currently the Company does not maintain
any research or laboratory premises, utilizing instead such facilities on a
contractual or collaborative basis at academic and research institutions, as
well as Contract Research Organizations. Considering the commercialization
infrastructure necessary to effectively market its drug products, the Company
will seek joint ventures or collaborations with other pharmaceutical companies,
both domestically and outside the United States. The Company will seek
corporate partners, such as Ares Serono, who will be responsible for at least
part of the clinical development, regulatory approval, manufacturing and
marketing of the drug product. Under such an arrangement, the Company expects
to receive certain up-front and sub-licensing fees, ongoing research contracts,
milestone payments, and royalties on drug product sales.
C. AXONYX DRUG DISCOVERY PROGRAMS
Axonyx is pursuing three different types of products for the treatment of
AD and one for prion-related diseases. The AD targeted approaches include: (1)
Phenserine, a novel, long-acting and brain directed analog of the classical drug
physostigmine, is a potent inhibitor of acetylcholinesterase for which an
Investigational New Drug application (IND) has been filed, (2) a
butyrylcholinesterase inhibitor which will be chosen from a series of novel,
selectively acting compounds, the best studied of which is Cymserine, and (3)
compounds named Amyloid Inhibitory Peptides (AlPs) that may prevent and reverse
the formation of amyloid plaques in AD and in diseases of peripheral
amyloidosis. Peripheral amyloidosis are types of diseases involving excessive
production
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and abnormal deposition of amyloid proteins in organs outside of the brain,
resulting in interference with important bodily functions in those organs.
In addition to inhibiting key enzymes associated with neural
transmission, Phenserine and Cymserine appear to have the unique ability to
inhibit the formation of the beta-amyloid precursor protein and reduce levels
of the beta-amyloid peptide, the primary deposit in amyloid plaque formation.
In addition they improve cognitive performance. The beta-amyloid protein is
an abnormal form of a protein normally found in the brain that is
over-produced in Alzheimer's Disease.
The Company is also conducting research on the diagnosis and treatment
of prion related diseases such as Bovine Spongiform Encephalopathy and
Creutzfeldt-Jakob Disease, new variant, using a series of Prion Inhibitory
Peptides (PIPs) which prevent and reverse the formation of the toxic form of
prions.
PROGRAM 1: INHIBITORS OF ACETYLCHOLINESTERASE AND BETA-AMYLOID PRECURSOR
PROTEIN (BETA-APP) FORMATION
Alzheimer's Disease is characterized by cognition impairments and
partial or total loss of memory. These impairments are caused by a loss of
presynaptic neurons of the cholinergic system of the brain and a loss of
cortically-projecting neurons that connect the mid-brain with the cortical
areas in the forebrain, particularly to brain areas associated with memory
and learning. The loss of neurons results in a decreased synthesis and
availability of acetylcholine, the neurotransmitter involved in mediating
these memory and learning functions. The Company's most advanced compound,
Phenserine, is designed to selectively inhibit acetylcholinesterase, the
enzyme primarily responsible for degrading acetylcholine at the synaptic gap
between neurons, thus increasing the availability of this neurotransmitter.
Phenserine has been shown to be a potent and selective inhibitor of this
enzyme in the rat brain and has the ability to increase memory and learning
over a wide therapeutic range in aged rats without causing toxic side
effects. The compound readily enters the brain, has minimal peripheral
activity outside the brain, and has a long duration of action.
Phenserine also has the unusual ability to inhibit the formation of the
beta-amyloid precursor protein (beta-APP), the larger protein that is the source
of the neurotoxic peptide, beta amyloid, which is deposited in the brain as
amyloid plaques that eventually apparently cause neuronal cell death. These
studies were conducted in human neuroblastoma cell cultures and IN VIVO in
rodents. Studies in human neuroblastoma cell lines importantly show that the
compound reduces the formation of beta- amyloid peptide. Additional animal
studies will be conducted to confirm and extend these findings. These results
suggest that Phenserine may have the ability to slow the progression of AD in
addition to providing symptomatic relief for the cognitive changes.
The Company is assessing the properties of other Phenserine analogs which
are ALSO potent inhibitors of acetylcholinesterase such as Tolserine, that may
ultimately prove to have certain additional advantages for use in AD, and
Thiatolserine, a compound
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whose characteristics are suitable for development as a transdermal agent
that is absorbed through a patch placed on the skin.
PROGRAM 2: INHIBITORS OF BUTYRYLCHOLINESTERASE AND BETA-AMYLOID PRECURSOR
PROTEIN (BETA-APP) FORMATION
The function of butyrylcholinesterase, a sister and similar enzyme to
acetylcholinesterase, remains largely unknown. Recent research suggests that
for specific nerve pathways within the human brain butyrylcholinesterase is
present intead of acetylcholinesterase. Butyrylcholinesterase activity is
elevated in the brains of AD patients. Butyrylcholinesterase is additionally
found in all tissues of the body and functions to degrade a number of drugs such
as codeine. This enzyme was identified as a target for inhibition in AD since
it terminates the action of the neurotransmitter acetylcholine in specific nerve
pathways in regions of the brain associated with AD and is found in high
concentration in amyloid plaques taken from the brains of AD patients.
The Company is currently characterizing a series of novel
butyrylcholinesterase inhibitors to select a drug candidate for development.
The lead candidate, Cymserine, has been studied extensively and has many of the
characteristics desirable for use in AD. Like Phenserine, it has a dual
mechanism of action in that in addition to inhibiting the butyrylcholinesterase
enzyme it also inhibits the formation of beta-APP in cell culture, and in rats.
Additional studies are being conducted to confirm and extend these important
findings. Cymserine readily enters the brain, has a long duration of action and
is highly active in improving memory and learning in the aged rat. These
findings indicate that Cymserine may have an important role in preventing the
formation of amyloid plaques in AD, in addition to its inhibition of
butyrylcholinesterase.
Axonyx appears to be the only company with a patent position and lead
compounds in this area of drug discovery and development. Other compounds in
the Cymserine series that may be pursued include Thiacymserine, an agent that
may be suitable for development in a transdermal (skin patch) formulation.
PROGRAM 3: AMYLOID INHIBITORY PEPTIDES (ALPS)
A key event in Alzheimer's Disease is the conversion of beta-amyloid
protein into beta-sheets that aggregate to form insoluble fibrous masses
(fibrils). These fibrils are deposited as part of the neurotoxic amyloid
plaques that appear to cause neuronal cell death. These changes play an
important role in the pathogenesis of the disease. The Company's amyloid
inhibitory peptides (AIPs) have been designed to block the aggregation of
beta-amyloid in a competitive manner by binding to the beta-sheet form of the
amyloid protein, thus preventing the formation of amyloid plaques in the
brain.
In experiments IN VITRO with one of the AIPs, the drug compound inhibited
the formation of fibrils, caused disassembly of preformed fibrils and prevented
neuronal cell death in cell culture. In a rat model of amyloidosis an AIP
reduced beta-amyloid protein deposition and completely blocked the formation of
amyloid fibrils. In addition, one of
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the AIPs has been shown to cause a significant reduction of established
amyloid deposits in the brains of rats. These results indicate the potential
for an AIP based drug to prevent the formation of the amyloid plaques, and to
treat AD patients with existing amyloid plaques. Current efforts are focused
on identifying a compound suitable for development for therapeutic use.
PROGRAM 4: PRION INHIBITORY PEPTIDES (PIPS)
There is increasing evidence to conclude that prions (proteinaceous
infectious particles) are the infectious agents that cause Bovine Spongiform
Encephalopathy (BSE), Creutzfeldt-Jakob Disease, new variant (CJDnv) and
possibly other transmissable spongiform encephalopathies. These diseases have
caused grave concern in Europe and the U.S. because of the potential for their
transmission to humans through the meat supply. These are fatal
neurodegenerative disorders that are characterized by spongiform degeneration of
the brain and, in many cases, by deposits of prions into plaques. The
infectivity of prions is believed to be associated with an abnormal folding of
the prion protein. This folding involves a conversion of the alpha-helical form
to the beta-sheet form that can then form plaques in the brain.
The Company is developing a series of Prion Inhibitory Peptides (PIPs),
also referred to as beta-sheet breaker peptides, that interact IN VITRO with the
normal form of the prion to prevent its conversion to the abnormal form, and to
interact with the abnormal form to cause it to revert to a normal prion.
Incubation of the PIPs with toxic prions taken from BSE and CJDnv infected cows
caused a reversion of the toxic prions to the normal form. Experiments are in
progress to determine if the PIPs can eliminate toxic prions from infected
animals. These findings suggest a novel strategy for designing diagnostics and
therapeutic treatments for prion related diseases.
PROGRAM 5: TREATMENT OF MILD COGNITIVE IMPAIRMENT
The biological and safety profile of Phenserine suggests that this drug
should be considered for treatment of individuals with mild to moderate
cognitive impairment and for age related loss of memory. The Company intends to
explore the opportunities for developing Phenserine for these indications if the
human clinical results are consistent with the preclinical findings.
D. THE INDUSTRY AND MARKET
A number of the major pharmaceutical companies have programs to develop
drugs for the treatment of Alzheimer's Disease. Many of these drugs are
acetylcholinesterase inhibitors. Currently, Warner-Lambert (Tacrine) and
Eisai/Pfizer (Aricept) have marketed compounds of this type and they may soon be
joined by Novartis (Exelon). Two biotechnology companies (Praecis and
Pharmaceutical Peptides, Inc.) appear to be pursuing the amyloid inhibitory
peptide approach similar in scope and direction as that of our Company, but are
not as far advanced in their efforts. Elan Pharmaceuticals, the California
based subsidiary of the Elan Corporation of Dublin, has
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developed a vaccine designed to cause the immune system to mount antibodies
against the amyloid proteins that make up amyloid plaques. This vaccine has
shown efficacy in genetically altered mice but has yet to be tested in
humans. To our knowledge at this time, no other company has a program to
develop butyrylcholinesterase inhibitors. In the field of prions, one
company, Prionics, A.G., of Zurich, Switzerland, is focusing on the
development of diagnostic tests for animal use but does not have a program in
therapeutics for prion diseases.
Axonyx believes that its proprietary patent rights provide broad based
protection and cover superior pharmaceutical compounds based on unique
mechanisms.
E. FDA MATTERS
Regulation by governmental authorities in the United States and foreign
countries is an important factor in the development, manufacture and marketing
of the Company's proposed products. It is expected that all of the Company's
products will require regulatory approval by governmental agencies prior to
their commercialization. Human therapeutic products are subject to rigorous
preclinical and clinical testing and other approval procedures by the Food and
Drug Administration ("FDA") and similar regulatory agencies in foreign
countries.
Preclinical testing is generally conducted on animals in the laboratory to
evaluate the potential efficacy and the safety of a pharmaceutical product. The
results of these studies are submitted to the FDA as a part of an
Investigational New Drug (IND) application, which must be approved before
clinical testing in humans can begin. Typically, the clinical evaluation
process involves a three phase process. In Phase I, clinical trials are
conducted with a small number of human subjects to determine the early safety
profile, the pattern of drug distribution and metabolism. In Phase II, clinical
trials are conducted with groups of patients afflicted with a specific disease
to determine preliminary efficacy, the optimal dosages, and more expansive
evidence of safety. In Phase III, large scale, multi-center, comparative
clinical trials are conducted with patients afflicted with a target disease in
order to provide enough data to demonstrate the efficacy and safety required by
the FDA. The results of the preclinical and clinical testing are submitted to
the FDA in the form of a New Drug Application (NDA) for approval to commence
commercial sales. In responding to an NDA, the FDA may grant marketing
approval, request additional information, or deny the application if the FDA
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all. Similar regulatory procedures are in place in countries
outside the United States.
The Company will seek to move its lead compounds through the FDA testing
and approval process. Phenserine is ready, upon approval of an Investigational
New Drug application (IND) by the FDA, to be clinically tested in humans. The
IND on Phenserine was filed by Axonyx in 1998. The IND for Phenserine has been
put on clinical hold by the FDA pending the correction of certain limited
deficiencies in the IND application. In response to the FDA's specifications
Axonyx has completed additional pharmacokinetic
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studies in animals, stability studies on the drug formulation to be used in
the Phase I clinical studies, and has obtained additional documentation
describing the Good Manufacturing Practices used in drug formulation. The
Company expects to begin Phase I human clinical trials for Phenserine by the
end of 1999. Cymserine is approximately one and a half years behind
Phenserine in preclinical development. The AIPs must undergo approximately
two more years of preclinical development before an IND can be filed.
F. STRATEGIC ALLIANCES
On April 1, 1997 the Company entered into a Research and License Agreement
with New York University pursuant to which NYU granted the Company an exclusive
worldwide license to certain patent applications covering the AIPs, PIPs and
related technology, and any inventions that arise out of ongoing research funded
by the Company. See "Section H. Patents, Trademarks and Copyrights". The
patent license terminates, on a country-by-country basis, upon expiration of the
last to expire of the licensed patents or eight years from the date of first
commercial sale of a licensed product in such country, whichever is later. In
addition to royalties on future sales of products developed from the patented
technologies, milestone payments and patent filing and prosecution costs, Axonyx
Inc. undertook to fund four years of research at the NYU School of Medicine at
Dr. Frangione's laboratory at a cost of $300,000 per year. The Company has an
exclusive license to all inventions in the field arising from this research on
the AIPs and PIPs.
The Research and License Agreement also contains a provision by which
Axonyx Inc. undertook to use its best efforts to raise an aggregate amount of $5
million through private placements of equity securities prior to April 1, 1998.
On August 25, 1998, NYU and Axonyx signed a Capitalization Amendment by which
the deadline for realization of the capitalization requirement or its
alternative was extended to April 1, 1999. On March 19, 1999, Axonyx signed a
Second Amendment to the Research and License Agreement with NYU pursuant to
which NYU, among other provisions, granted Axonyx a release and waiver of the
capitalization requirement under the Research and License Agreement as amended
by the Capitalization Amendment.
On April 3, 1997, Axonyx Inc. also signed Stock Option agreements with NYU
and Drs. Frangione and Soto, the lead scientists involved in the sponsored
research, under which Axonyx Inc. issued an aggregate of 600,000 shares of
Common Stock (adjusted for stock splits) in October and November 1997 in partial
consideration for the worldwide exclusive patent rights. See Item 6. Interests
of Management and Others in Certain Transactions.
On May 19, 1999 Axonyx signed a Development Agreement and Right to License
(the "Development Agreement") between itself and Applied Research Systems ARS
Holding N.V., a wholly owned subsidiary of Ares Serono International S.A., a
Swiss pharmaceutical company ("Ares Serono"). Under the Development Agreement,
the Company granted an exclusive right to license its patent rights and know-how
regarding
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the the AIPs to Ares Serono. Ares Serono paid Axonyx a fee for the right to
license of $250,000. The right to license has a one year term, renewable for
an additional one year period upon payment of a fee of $500,000. In addition
Ares Serono undertakes to conduct research on the AIP technology during the
term of the Development Agreement. Any patent rights or know-how developed
by Ares Serono arising out of the conduct of the research shall revert to
Axonyx if Ares Serono elects not to exercise the right to license.
In conjunction with the Development Agreement between Axonyx and Ares
Serono, Ares Serono has entered into an employment agreement with Dr. Claudio
Soto, one of the lead scientists involved in the research on the AIPs and PIPs,
who performed professional services for Axonyx from February 1999 after his
departure from New York University School of Medicine in December 1998 until May
1999. Dr. Soto will be continuing his work on development of the AIP technology
at Ares Serono under the Development Agreement.
Research under the Company's licensing agreement with CURE, LLC has
continued at the NIA, furthering the preclinical development of Phenserine,
Cymserine, and related compounds. The Company is currently sponsoring one of
the researchers at the NIA facilities involved in this field of research. See
Section K: Independent Contractors.
In order to facilitate the recruitment and enrollment of patients into
clinical trials of the Company's pharmaceutical products, Axonyx has entered
into preliminary discussions with a number of institutions that operate centers
for the treatment of aged individuals. These institutions include the
University of Washington, Oregon Health Sciences, and the Aging and Dementia
Center at New York University, as well as a number of companies that operate
senile dementia centers providing long term residential care for elderly people
suffering from various forms of dementia including AD. It is contemplated that,
subject to appropriate ethical protection, through these institutions Axonyx
will have access to large groups of subjects for the Phase II and Phase III
testing of its drugs, that are prerequisites to FDA approval.
G. MARKETING AND SALES
The Company does not intend to manufacture or market any products it may
develop. The Company intends to license to, or enter into strategic alliances
with, larger pharmaceutical and veterinary companies that are equipped to
manufacture and/or market the Company's products through their well developed
distribution networks. The Company may license some or all of its worldwide
patent rights to more than one company to achieve the fullest development,
marketing and distribution of its products.
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H. PATENTS, TRADEMARKS, AND COPYRIGHTS
The Company has obtained exclusive worldwide licenses to three patents
issued by the United States Patent and Trademark Office, and to two patent
applications pending in the United States. The Company is filing, in
conjunction with one of its Licensors, a patent application covering technology
to be owned jointly by both parties. The Company will continue to seek to
obtain additional licenses from universities and other research institutions.
On February 11, 1997, Axonyx Inc. obtained an exclusive worldwide license
from the NIA's parent agency, the Public Health Service ("PHS"), to three
patents technologies relating to Phenserine, Cymserine, their analogs and
related acetylcholinesterase and butyrylcholinesterase compounds from the
laboratory of Dr. Nigel Grieg and his collaborators via a sublicense with CURE,
LLC. Under the license agreement, Axonyx Inc. agreed to pay royalties to CURE,
LLC on future sales of products developed from the patented technologies, as
well as an up front fee, milestone payments and patent filing and prosecution
costs. All three patents have been issued in the United States. Certain pass
through provisions from the License Agreement between CURE, LLC and the PHS are
contained in the Company's License Agreement with CURE, LLC. Those provisions
cover certain reserved government rights to the licensed patents, obligations to
meet certain benchmarks and perform a commercial development plan, as well as
indemnification, termination and modification of rights. The license terminates
upon the last to expire of the licensed patents or the term of the agreement
between CURE, LLC and the PHS, whichever occurs first. Patent applications
corresponding to these three patents have been filed in Europe, Japan,
Australia, and Canada.
A pending patent application directed to highly selective
butyrylcholinesterase inhibitors resulting from a collaboration between Dr.
Hausman of Axonyx and Dr. Grieg of the NIA concerning certain therapeutic uses
for Cymserine has also been filed. This patent application is jointly owned by
the Company and the NIA. Additional patent applications concerning new
developments with Cymserine-related compounds and Phenserine-related compounds
are under preparation to be filed.
The Company obtained an exclusive worldwide license from NYU to two U.S.
patent applications and continuations thereof from the laboratory of Dr. Blas
Frangione at the New York University School of Medicine covering the AIP and PIP
technologies. The NYU patent applications relate to the AIPs and PIPs. A
patent application covering the AIPs and PIPs has been filed in the United
States, Europe, Japan, Australia, and Canada. In addition, the Company has an
exclusive license to all inventions in the field arising from ongoing research.
The Company has not filed for any copyright or trademark protection to
date. The following is a breakdown of the issued and pending patents the
Company has acquired rights to.
<PAGE>
14
ISSUED PATENTS
U.S. Patent #5,171,750 issued December 15, 1992 for "Substituted Phenserines as
Specific Inhibitors of Acetylcholinesterase". This patent expires December 15,
2009.
U.S. Patent #5,378,723 issued January 3, 1995 for "Carbamate Analogs of
Triophysovemine and Method for Inhibiting Cholinesterases". This patent expires
January 3, 2012.
U.S. Patent #5,409,948 issued April 25, 1995 for "Method for Treating Cognitive
Disorders with Phenserine". This patent expires December 15, 2009.
PATENTS PENDING
Note that there can be no assurance that corresponding patents will be
issued or that the scope of the coverage claimed in the following patent
applications will not be significantly reduced prior to any patent being issued.
NYU filed a United States patent application entitled "PEPTIDES AND
PHARMACEUTICAL COMPOSITIONS THEREOF FOR TREATMENT OF DISORDERS OR DISEASES
ASSOCIATED WITH ABNORMAL PROTEIN FOLDING INTO AMYLOID OR AMYLOID-LIKE DEPOSITS."
on June 6, 1995. Applicants: Claudio Soto, Marc Baumann, Blas Frangione.
The NIH/NIA filed U.S. Patent Application Serial No. 08/096,207, on July
26, 1993, entitled, "Phenylcarbamates of (-)-Eseroline, (-)-N1-Noreseroline
and (-)-N1-Benzylnoreseroline: Selective Inhibitors of Acetyl and/or
Butyrylcholinesterase." Inventors: Brossi et al (NIA and NIDDK). This
patent application is presently pending before the Board of Appeals of the
U.S. Patent Office and contains claims directed to three novel compounds:
(-)-2-methylphenylcarbamoyl, N1-noreseroline, N1 bezylnoreseroline and their
pharmaceutically acceptable salts. Further claims are directed to
pharmaceutical compositions containing at least one of such compounds and
methods of inhibiting acetylcholinesterase or treating cholinergic diseases
using such compounds.
The Company filed in July of 1998 an additional application co-owned with
the NIA entitled "HIGHLY SELECTIVE BUTYRYLCHOLINESTERASE INHIBITORS FOR
ALZHEIMER'S DISEASE." This patent application seeks to protect certain
butyrylcholinesterase inhibitor compounds and important platform technology for
their use in the early diagnosis and treatment of AD and related conditions.
I. COMPETITION
The Company competes with many large pharmaceutical companies that are
developing drug compounds similar to those being developed by the Company,
especially
<PAGE>
15
in the area of acetylcholinesterase inhibitors. Many large pharmaceutical
companies and smaller biotechnology companies have well funded research
departments concentrating on therapeutic approaches to AD. The Company
expects to encounter substantial competition for many of the principal
pharmaceutical products it is developing, especially in the area of
acetylcholinesterase inhibitors. However, the Company is not aware of any
other commercial research programs in the area of butyrylcholinesterase
inhibitors, and it believes that its patent protection covering the AIPs, if
approved by the U.S. Patent Office, will offer broad based protection and
will provide the Company with a significant competitive advantage to its
competitors.
In the intense competitive environment that is the pharmaceutical industry,
those companies that complete clinical trials, obtain regulatory approval and
commercialize their drug products first will enjoy competitive advantages. The
Company believes that the compounds covered by its patent rights have unique
characteristics that may enable them, if fully developed, to have a substantial
market impact.
J. EMPLOYEES
The Company currently has four full time employees, all of whom are in
administration/management. In February 1999, the Company came to an oral
agreement with Linda Strascina under which Ms. Strascina will serve as Director
of Corporate Communications and Investor Relations for an annual salary of
$40,000, with a performance based bonus. Ms. Strascina is not an officer or
director of the Company. See Item 5. Remuneration of Directors and Officers:
Employment Agreements for information on the Company's employment arrangements
with its officers and directors. The Company expects to hire up to two more
employees in 1999, in scientific management and support staff.
K. INDEPENDENT CONTRACTORS
Dr. Tadanobu Utsuki, a pharmaceutical chemist who is collaborating with Dr.
Nigel Greig at the NIA on research concerning Phenserine and related compounds,
signed a Professional Services Agreement with the Company on December 10, 1998
under which Dr. Utsuki was compensated in the amount of $9,250.00 for his
research for the period from October 1, 1998 to January 1, 1999. Dr. Utsuki
continues to do research for the Company on a month by month basis and is
compensated at the rate of $3,000 per month.
L. CONSULTANTS
The Company has and will continue to make use of outside consultants and
advisors in the development of its pharmaceutical products. The Company has
entered into arrangements with eight consultants or advisors, five of whom sit
on the Company's Scientific Advisory Board.
<PAGE>
16
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's operations are conducted from its offices in New York, New
York, Seattle, Washington and Stevenson, Washington. The Stevenson, Washington
facilities have been provided to the Company without charge on a temporary basis
by an officer of the Company. The Company has leased office space in Seattle on
a three month renewable basis. The Company has leased office space in New York
for a one year period, renewable for an additional one year period.
The Company does not currently own and the Company has not made any
investments in real estate, including real estate mortgages, and the Company
does not intend to make such investments in the near future.
Item 3. PLAN OF OPERATION.
The Company's predecessor Axonyx Inc. commenced operations in January 1997.
The Company is in the development stage, and its efforts have been principally
devoted to research and development activities and organizational efforts,
including the development of pharmaceutical compounds and product candidates for
the diagnosis and treatment of Alzheimer's Disease, other forms of dementia,
Bovine Spongiform Encephalopathy and Creutzfeldt Jakob Disease, new variant,
recruiting its scientific and management personnel and advisors and raising
capital.
The Company's plan of operation for the next 12 months will consist of
research and development and related activities aimed at:
(1) initiating Phase I clinical trials on its lead acetylcholinesterase
inhibitor, Phenserine. See Item 1. Description of Business - Axonyx Drug
Discovery Programs - Program 1: Inhibitors of Acetylcholinesterase and
Beta-Amyloid Precursor Protein (Beta-APP) Formation.
(2) further preclinical development at the NIA of the other
acetylcholinesterase inhibitors, Tolserine and Thiatolserine, and continued
study of the activity of the Phenserine analogues.
(3) further preclinical development at the NIA of the butyrylcholinesterase
inhibitor, Cymserine and active analogues. See Item 1. Description of
Business - Axonyx Drug Discovery Programs - Program 2: Inhibitors of
Butyrylcholinesterase and Beta-Amyloid Precursor Protein (Beta-APP)
Formation.
(4) further preclinical development of the Amyloid Inhibiting Peptides at NYU
and at Ares Serono, additional work at other facilities with IN VIVO
studies and development of a peptido-mimetic. See Item 1. Description of
Business - Axonyx Drug Discovery Programs - Program 3: Amyloid Inhibiting
Peptides (AIPs).
<PAGE>
17
(5) further preclinical development of the Prion Inhibiting Peptides at NYU.
See Item 1. Description of Business - Axonyx Drug Discovery Programs -
Program 4: Prion Inhibiting Peptides (PIPs).
(6) hiring a scientific director and an administrative assistant.
(7) seeking to establish additional strategic partnerships for the development,
marketing, sales and manufacturing of the Company's proposed products. See
Item 1. Description of Business - Business Strategy.
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial viability and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent on the establishment of the Company's collaborative arrangement with
other companies, the availability of financing and other factors.
Pursuant to its present cost projections, the Company has determined that
it will require funding in the amount of approximately $2.2 million through
August 31, 2000, however thereafter the Company may need to raise additional
capital. In order to satisfy this funding requirement, during the period
between October 1998 and December 1998, the Company received net proceeds of
approximately $2.5 million from the sale of Units consisting of 1,030,000 shares
of Common Stock and Common Stock Purchase Warrants to purchase 1,030,000 shares
of Common Stock at an exercise price of $3.75. In addition, the Company
received $250,000 in June 1999 in the form of a fee from Ares Serono pursuant to
the Development Agreement and Right to License.
As a result of such receipts, the Company believes that it has
sufficient capital to finance the Company's plan of operation for
approximately 12 months. The Company is currently undertaking a $5 million
equity placement of units composed of shares of common stock and common stock
purchase warrants, and is pursuing sub-licensing and other collaborative
arrangements that may generate additional capital for the Company. As of
August 2, 1999, proceeds in the amount of $825,000.00 have been received by
the Company in relation to its current equity private placement. However,
there can be no assurance that the Company will generate sufficient
additional revenues, if any, to fund its operations beyond this 12 month
period ended August 31, 2000, that the current equity financing will be
successful, or that other potential financings through bank borrowings, debt
or equity offerings, or otherwise, will be available on acceptable terms or
at all.
<PAGE>
18
ITEM 4. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
The current executive officers, directors and significant employees of the
Company are as follows:
NAME AGE POSITION
- ---- --- --------
Marvin S. Hausman, M.D. 57 President & Chief Executive
Officer, Director
Albert D. Angel 61 Chairman of the Board
of Directors
Michael M. Strage 39 Vice President, Treasurer,
Director
Michael R. Espey 37 Vice President, Secretary,
Director
Christopher Wetherhill 50 Director
Each director is elected to hold office for a one year term or until the
next annual meeting of stockholders and until his successor is elected and
qualified. The officers of the Company serve at the pleasure of the Company's
Board of Directors (the "Board").
The following sets forth certain biographical information with respect to
the directors and executive officers of the Company.
MARVIN S. HAUSMAN, M.D. Marvin Hausman has served as a Director and
President & CEO of the Company since January 1999, and as a Director and
President & CEO of the predecessor company, Axonyx Inc., from January 1997 to
December 1998. Dr. Hausman was a founder of Medco Research Inc., a
pharmaceutical biotechnology company specializing in adenosine products. He
has thirty years experience in drug development and clinical care. Dr.
Hausman received his medical degree from New York University School of
Medicine in 1967 and has done residencies in General Surgery at Mt. Sinai
Hospital in New York, and in Urological Surgery at U.C.L.A. Medical Center in
Los Angeles. He also worked as a Research Associate at the National
Institutes of Health, Bethesda, Maryland. He has been a Lecturer, Clinical
Instructor and Attending Surgeon at the U.C.L.A. Medical Center Division of
Urology and Cedars-Sinai Medical Center, Los Angeles. He has been a
Consultant on Clinical/Pharmaceutical Research to various pharmaceutical
companies, including Bristol-Meyers International, Mead-Johnson
Pharmaceutical Company, Medco Research, Inc., and E.R. Squibb. Since October
1995 Dr. Hausman has been the President of Northwest Medical Research
Partners, Inc., a medical technology and transfer company. He was a member
of the board of directors of Medco Research, Inc. from May 1996 to July 1998.
Dr Hausman has been a member of
<PAGE>
19
the board of directors of Regent Assisted Living, Inc., a company
specializing in building assisted living centers including care of senile
dementia residents, since March 1996. Dr. Hausman intends to devote at least
90% of his time to the Company.
ALBERT D. ANGEL, ESQ. Albert Angel has served as Chairman of the Board of
Directors of the Company since January 1999 and served as Chairman of the
Board of Directors of the predecessor company, Axonyx Inc., from April 1997
to December 1998. Mr. Angel has more than 30 years of experience in the
pharmaceutical and biotechnology fields, primarily at Merck & Co., Inc. Mr.
Angel received his law degree from Yale Law School in 1960 and, after army
service, was with the firm of Hughes Hubbard Blair & Reed until 1967. Mr.
Angel joined Merck in 1967 as Latin American attorney and served successively
as European Counsel and International Counsel until 1977 when he relocated to
London as Vice-President of Merck Sharp & Dohme (Europe), Inc. During the
next 8 years he served first as Regional Director responsible for Merck's
Scandinavian businesses and then as Chairman and Managing Director of Merck
Sharp & Dohme Limited responsible for business activities in the United
Kingdom, Ireland and Anglophone Africa. From 1985 to 1993 Mr. Angel served
as Vice-President, Public Affairs for Merck & Co., Inc. Since 1993 Albert
Angel has been President of Angel Consulting and since November 1994 Mr.
Angel has been a partner in Naimark & Associates, both of which provide
management, marketing, planning and public affairs advice to pharmaceutical
and biotechnology companies. He is also vice-chair of the National Board of
Trustees of the National Jewish Medical and Research Center (Denver,
Colorado). Mr. Angel intends to devote at least 30% of his time to the
Company.
CHRISTOPHER WETHERHILL Christopher Wetherhill has served as a Director of the
Company since January 1999 and served as a Director of the predecessor company,
Axonyx Inc., from August 1997 to December 1998. From 1971 until 1977 he was the
manager of the accounting and management services department at Arthur Young &
Co., now Ernst & Young, Bermuda. From 1977 to 1981, he was a director and
financial controller of Offshore Contractors (Bermuda) Limited, a Bermuda
company involved in offshore oil platform construction and shipping. He is a
Fellow of the Institute of Chartered Accountants in England and Wales, a member
of the Bermudian and Canadian Institutes of Chartered Accountants, and a Fellow
of the Institute of Directors and Freeman of the City of London. Since
September 21, 1994, Mr. Wetherhill has been the managing director of Boundary
Bay Investments Limited, a major shareholder of the Company. Mr. Wetherhill is
a chartered accountant and from September 1981 to June 1996, he was the
President and Chief Executive Officer of Hemisphere Management Limited of
Bermuda, a corporate management company. From June 1996 to the present Mr.
Wetherhill has been President & CEO of MRM Financial Services Ltd. (the parent
company of Hemisphere Management Limited).
MICHAEL M. STRAGE, ESQ. Mr. Strage has been a Director, Vice President and
Treasurer of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., from January 1997 to December
1998. He served as Axonyx Inc.'s Secretary from January 1997 until September
1998, and as Treasurer until the merger in December 1998. Michael Strage is an
attorney with experience in
<PAGE>
20
corporate transactions, commercial and securities law, and litigation. From
August 1986 to March 1991 Mr. Strage was an assistant district attorney at
the Manhattan District Attorney's office. From April 1991 until March 1996,
Mr. Strage was an associate at the Los Angeles law firm of Hancock, Rothert &
Bunschoft. From April 1996 to August 1998 Mr. Strage was an employee at
Espey & Associates, Inc., a New York firm, where he was involved in
structuring several transnational securities placements.
MICHAEL R. ESPEY, ESQ. Mr. Espey has been a Director, Vice President and
Secretary of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., since January 1997. He
served as Axonyx Inc.'s Treasurer from January 1997 until September 1998, and as
Secretary until the merger in December 1998. Michael Espey is an attorney based
in Seattle, Washington with extensive experience in securities law and
investment banking. From October 1994 to December 1995 Mr. Espey served as
General Counsel for the securities firm of Lee, Van Dyk, Zivarts, Pingree & Co.
in Seattle. From January 1996 to March 1996 Mr. Espey was a self-employed
attorney practicing corporate and securities law. From April 1996 to August
1998 Mr. Espey worked at Espey & Associates, Inc. a New York firm where he was
involved in structuring several transnational securities placements.
Michael Strage is married to Michael Espey's sister. There are no other
family relationships between any of the officers and directors.
The Company has constituted Audit, Nominating and Compensation Committees.
The Audit Committee consists of Messrs. Christopher Wetherhill and Albert Angel.
The Nominating Committee consists of Messrs. Marvin Hausman and Albert Angel.
The Compensation Committee consists of Messrs. Albert Angel, Marvin Hausman and
Christopher Wetherhill.
The Audit Committee oversees the Company's audit activities to protect
against improper and unsound practices and to furnish adequate protection to all
assets and records. The Nominating Committee makes proposals to the full Board
concerning the hiring or engagement of directors, officers and certain employee
positions. The Compensation Committee makes proposals to the full Board for
officer compensation programs, including salaries, option grants and other forms
of compensation. It is expected that these committees will meet periodically on
an informal basis
<PAGE>
21
ITEM 5. REMUNERATION OF DIRECTORS AND OFFICERS.
CASH COMPENSATION
The Company, in its pre-merger period, did not pay any cash compensation to
its officers and directors.
Below is the aggregate annual remuneration of each of the highest paid
persons who were officers or directors of Axonyx Inc., the Company's pre-merger
predecessor, during Axonyx Inc.'s last two fiscal years ended December 31, 1997
and December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------------------------- ----------------------------------------------
Awards Payouts
---------------------- ---------------------
Securities
Other Underly-
Annual Restricted ing Op- All Other
Compen- Stock tions/ LTIP Compen-
Name and Principal Year Salary Bonus sation Awards SARs Payouts sation
Position
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin S. Hausman, CEO 1998 $0 $0 $0 none none none none
1997 $0 $0 $0 none none none none
</TABLE>
EMPLOYMENT AGREEMENTS
Marvin S. Hausman, M.D., President & CEO. In January 1999, the Company
came to an oral agreement with Marvin Hausman whereby Dr. Hausman will serve
as President & CEO of the Company and as a Director of the Company for an
annual salary of $125,000.
Michael M. Strage, Vice President & Treasurer. In January 1999, the
Company came to an oral agreement with Michael Strage whereby Mr. Strage will
serve as Vice President & Treasurer of the Company and as a Director of the
Company for an annual salary of $100,000.
Michael R. Espey, Vice President & Secretary. In January 1999, the Company
came to an oral agreement with Michael Espey whereby Mr. Espey will serve as
Vice President & Secretary of the Company and as a Director of the Company for a
monthly salary of $7,000.
DIRECTOR COMPENSATION
In June 1997, Axonyx Inc. entered into a letter agreement and a Vesting
Agreement with Mr. Angel pursuant to which Albert D. Angel, Chairman of the
Board of
<PAGE>
22
Directors, was issued 500,000 shares of restricted Common Stock subject to a
two year vesting schedule ending March 1, 1999. Mr. Angel's shares vested
pro rata on a monthly basis in compensation for his services as Chairman of
the Board of Directors.
Christopher Wetherhill served as a director of Axonyx Inc. from August
1997 to December 1998 without compensation. On January 13, 1999 Mr.
Wetherhill was granted 40,000 options exercisable at $2.88 vesting over a
four year period.
Outside directors of the Company are compensated for the attendance of
Board Meetings at the following rates: $500.00 for each Board Meeting attended
in person, and $250.00 for each Board Meeting attended by telephone.
INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN
On December 1, 1998, the Board of Directors ratified a stock option plan
called the "1998 Stock Option Plan" (the "Plan") and on December 4, 1998, the
stockholders approved the Plan.
The Company believes that the Plan will work to increase the proprietary
interest in the Company of its directors, officers, employees and consultants,
and to align more closely their interests with that of the Company's
stockholders. The Plan will also maintain the Company's ability to attract and
retain the services of experienced and highly qualified employees, officers,
directors, and consultants.
Under the Plan, the Company reserved an aggregate of 2,000,000 shares of
Common Stock (as adjusted) for issuance pursuant to options granted under the
Plan (the "Plan Options"). On February 2, 1999, the Board of Directors of the
Company decided to adjust the number of shares reserved for issuance pursuant to
the Options in relation to the two for one forward stock split on February 23,
1999. The Compensation Committee of the Board of Directors of the Company
administers the Plan including, without limitation, the selection of persons who
will be granted Options under the Plan, the type of Plan options to be granted,
the number of shares subject to each Plan Option and the Plan Option price.
The Plan authorizes the issuance of incentive stock options ("ISOs") as
defined in Section 422A of the Internal Revenue Code of 1986 and non-statutory
stock options ("NSSOs").
Any ISO granted under the Plan must provide for an exercise price of not
less than 100% of the fair market value of the underlying shares on the date of
such grant, but the exercise price of any ISO granted to an eligible person
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The aggregate fair
market value of the shares covered by the ISOs granted under the Plan that
become exercisable to a Plan participant for the first time in any calendar year
is subject to a $100,000 limitation. The exercise price of each NSSO is
determined by the Compensation Committee of the Board of
<PAGE>
23
Directors, in its discretion. The Compensation Committee shall determine the
term of the options, provided, however, that in no event may an ISO be
exercisable more than ten years after the date of its grant and, in the case
of an ISO granted to an eligible employee owning more than 10% of the
Company's Common Stock, no more than five years after the date of the grant.
Any option which is granted shall be vested and exercisable at such time as
determined by the Compensation Committee.
As of December 31, 1999, there were non-statutory stock options outstanding
to purchase an aggregate of 150,000 shares granted by the Company's predecessor
company Axonyx Inc. in 1997 under the 1997 Axonyx Stock Option Plan and assumed
under the Plan upon the consummation of the merger.
OPTION GRANTS IN THE LAST FISCAL YEAR
The Company did not grant any stock options in the last fiscal year. The
Company's predecessor company, Axonyx Inc., also did not grant any options to
purchase shares during Axonyx Inc.'s last fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
- --------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/
Underlying SARs
Options/ Granted To
SARs Employees Exercise or
Granted In Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marvin S. Hausman. M.D. 0 0 0 n/a
Albert D. Angel 0 0 0 n/a
Michael R. Espey 0 0 0 n/a
Michael M. Strage 0 0 0 n/a
Christopher Wetherhill 0 0 0 n/a
</TABLE>
OPTION EXERCISES AND HOLDINGS
No options to purchase shares of Common Stock of the Company or its
predecessors were exercised during the fiscal year ended December 31, 1998. The
number of unexercised options held as of the end of the 1998 fiscal year were
283,200. 150,000 non-statutory stock options were granted to Richard Salvador,
a consultant to the Company on September 2, 1997 under the 1997 Axonyx Stock
Option Plan. New York University is entitled to 76,980 non-statutory stock
options, Dr. Blas Frangione and Dr. Claudio Soto are each entitled to 38,490
non-statutory stock options based on a percentage of the current shares
outstanding, exercisable at certain capitalization
<PAGE>
24
milestones pursuant to Stock Option Agreements signed on April 3, 1997. See
Item 6. Interests of Management and Others in Certain Transactions.
RECENT OPTION GRANTS
(These numbers have been adjusted to reflect the 2:1 forward stock split
effective February 23, 1999)
On January 4, 1999, the Company granted options to purchase 30,000 shares
of Common Stock exercisable at $1.25 per share to Intertrend Management Limited
under a Financial Consulting Agreement dated November 10, 1998 under which
Intertrend was retained to perform investment banking and other services
concerning the merger to the Company. These options were issued outside of the
Stock Option Plan.
On January 13, 1999, the Company granted an aggregate of 340,600
Non-Statutory Stock Options and 240,000 Incentive Stock Options to officers,
directors and to a consultant of the Company pursuant to its 1998 Stock
Option Plan under various vesting schedules:
The Company granted 300,000 Non-Statutory Stock Options exercisable at
$2.88 per share to Albert D. Angel, Chairman of the Board, with 75,000 vesting
immediately, 75,000 vesting on January 1, 2000, 75,000 vesting on January 1,
2001, and 75,000 vesting on January 1, 2002. On January 13, 1999, Mr. Angel
transferred all right, title and interest in these options to the Angel Brothers
Partnership, a partnership consisting of Mr. Angel's adult sons.
The Company granted 40,000 Non-Statutory Stock Options exercisable at $2.88
per share to Christopher Wetherhill, a director of the Company, with 10,000
options vesting immediately, 10,000 vesting on January 1, 2000, 10,000 vesting
on January 1, 2001, and 10,000 vesting on January 1, 2002.
The Company granted 600 Non-Statutory Stock Options exercisable at $2.88
per share to Roberta Matta, a consultant to the Company, with all shares vesting
immediately.
The Company granted 200,000 Incentive Stock Options exercisable at $3.11
per share to Marvin S. Hausman, President & CEO of the Company, with 50,000
options vesting immediately, 50,000 vesting on January 1, 2000, 50,000 vesting
on January 1, 2001, and 50,000 vesting on January 1, 2002.
The Company granted 40,000 Incentive Stock Options exercisable at $2.88 per
share to Michael M. Strage, Vice President & Treasurer of the Company, with
10,000 options vesting immediately, 10,000 vesting on January 1, 2000, 10,000
vesting on January 1, 2001, and 10,000 vesting on January 1, 2002.
<PAGE>
25
On March 25, 1999, the Company granted 10,000 Non-Statutory Options
exercisable at $2.87 per share to Marvin E. Jaffe, M.D., a consultant to the
Company, with 5,000 options vesting immediately and 5,000 vesting on March 1,
2000.
On March 25, 1999, the Company granted 5,000 Non-Statutory Options
exercisable at $4.70 per share to Lawrence T. Friedhoff, a consultant to the
Company, with all options vesting immediately.
On March 25, 1999, the Company granted 2,500 Non-Statutory Options
exercisable at $4.70 per share to Robert G. Burford, a consultant to the
Company, with all options vesting immediately.
On March 26, 1999, the Company granted 6,000 Non-Statutory Options
exercisable at $2.87 per share to Norman W. Lavy, M.D., with 3,000 options
vesting immediately and 3,000 options vesting on June 30, 1999.
On June 7, 1999, the Company granted 20,000 Incentive Stock Options
exercisable at $8.50 to Michael R. Espey, Vice President & Secretary of the
Company, with 10,000 options vesting immediately, and 10,000 vesting on
January 1, 2000.
<PAGE>
26
ITEM 6. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock (the "Shares") as of August 2, 1999 (a)
by each person known to the Company to own beneficially 5% or more of any class
of the Company's securities, including those shares subject to outstanding
options and (b) by each of the Company's officers and directors and (c) by all
officers and directors of the Company as a group. As of August 2, 1999 there
were 12,566,002 shares of Common Stock of the Company issued and outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ---------------- ---------------- ----------------
<S> <C> <C>
Marvin S. Hausman, M.D. (2) 2,038,500 16.15%
Christopher Wetherhill (3) 1,077,500 8.56%
Albert D. Angel (4) 500,000 3.98%
Michael M. Strage (5) 260,000 2.07%
Michael R. Espey (6) 260,000 2.07%
--------- -------
All directors and executive
officers (five persons) as a group 4,136,000 32.45%
--------- -------
Steven C. Espey (7) 2,050,000 16.31%
Boundary Bay Investments Ltd. (8) 960,000 7.58%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address of each of the listed beneficial
owners identified above is 750 Lexington Avenue, Suite 1400, New York, NY
10022. Unless otherwise noted, the Company believes that all persons named
in the table have sole voting and investment power with respect to all the
Shares beneficially owned by them.
(2) Marvin S. Hausman, M.D. was a founder of the Company and currently serves
as the President and Chief Executive Officer. Includes (i) 1,988,500
shares owned by Dr. Hausman; and (ii) 50,000 vested but unexercised options
exercisable at $3.11 per share granted on January 13, 1999.
(3) Christopher Wetherhill is a Director of the Company. Includes (i) 107,500
shares held in Mr. Wetherhill's name; (ii) 860,000 shares held by Boundary
Bay Investments Ltd. ("BBI"). Mr. Wetherhill holds a controlling position
as the Managing Director of BBI and is the sole beneficial owner; (iii)
100,000 shares
<PAGE>
27
that BBI may acquire upon conversion of the principal of two Convertible
Notes in the aggregate amount of $200,000 with a conversion price of
$2.00 per share; and (iv) 10,000 vested but unexercised options
exercisable at $2.88 per share granted on January 13, 1999 held in Mr.
Wetherhill's name. Mr. Wetherhill's address is 9 Church Street, Hamilton
HM 11, Bermuda.
(4) Albert D. Angel is the Chairman of the Board of Directors of the Company.
All shares are owned by Mr. Angel. On January 13, 1999, Albert Angel
transferred 300,000 non-qualified stock options to the Angel Brothers
Partnership, including 75,000 vested but unexercised options exercisable at
$2.88 per share granted to Mr. Angel on January 13, 1999. See Part II,
Item 5, Remuneration of Directors and Officers, Recent Option Grants.
(5) Michael M. Strage was a co-founder of the Company and currently serves as
Vice President and Treasurer. Includes (i) 250,000 shares owned by Mr.
Strage; and (ii) 10,000 vested but unexercised options exercisable at $2.88
per share granted on January 13, 1999.
(6) Michael R. Espey was a co-founder of the Company and currently serves as
Vice President and Secretary. Includes (i) 250,000 shares owned by Mr.
Espey; and (ii) 10,000 vested but unexercised options exercisable at $8.50
per share granted on June 7, 1999. Michael Espey's address is 1001 4th
Avenue Plaza, Suite 3228, Seattle, WA 98154.
(7) Steven C. Espey was a founder of the Company. Steven Espey is Michael
Espey's stepfather. All shares are owned by Mr. S. Espey. Mr. Espey's
address is 358 East 69th Street, New York, NY 10021.
(8) Boundary Bay Investments Ltd. is a Cayman Islands corporation beneficially
owned by Christopher Wetherhill, a director of the Company. Includes (i)
860,000 shares issued in the name of BBI; and (ii) 100,000 shares that BBI
may acquire upon conversion of the principal of two Convertible Notes in
the aggregate amount of $200,000 with a conversion price of $2.00 per
share. The address of BBI is 3rd Floor Harbour Centre, George Town, Grand
Cayman, Cayman Islands, B.W.I.
ITEM 7. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
(Numbers for Ionosphere, Inc. shares issued prior to the merger are adjusted
retroactively to reflect the 1 for 2 reverse split on December 28, 1998 unless
otherwise indicated.)
During 1997 and up to March 1, 1999, Steven Espey provided the Company with
the use of office space in New York. There has been no specific charge for such
use of office space, although issuance of Common Stock to Steven Espey at the
time of the Company's founding was designed, in part, to reflect this
anticipated contribution. The
<PAGE>
28
President of the pre-merger company, Ionosphere, Inc. provided Ionosphere
with office space without charge from August 1997 to December 1998.
Marvin S. Hausman, M.D. provided services as President & CEO to the Company
predecessor Axonyx Inc. from the time it began operations in January 1997
without cash remuneration from Axonyx Inc. Michael Strage and Michael Espey
provided services to the Company's predecessor Axonyx Inc. as officers since it
began operations in January 1997 until September 1998 without cash remuneration.
J.T. Jesky provided services as President to the pre-merger company
Ionosphere, Inc. from the time it began operations in July 1997 until December
1998 without compensation from Ionosphere, Inc. Skyelan Rose provided services
as Secretary and Ann Reihl provided services as Treasurer to the Ionosphere,
Inc. from the time it began operations in July 1997 until December 1998.
On March 5, 1997, Axonyx Inc. issued 4,300,000 shares of Common Stock to
Boundary Bay Investments Ltd. Of these shares, 3,300,000 shares of Common Stock
were issued upon assignment of option rights to certain exclusive patent rights,
and 1,000,000 shares of Common Stock were issued for the commitment of an
investment of $400,000 pursuant to an Investment Agreement dated February 18,
1997. The Company received $400,000 over a one year period between March 7,
1997 and February 4, 1998.
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with NYU
under which NYU was granted non-statutory options to receive that number of
shares of Common Stock of the Company that would bring NYU's shareholdings in
the Company's Common Stock to 1.25% of the outstanding shares as of the date
that the paid in capital of the Company is $5,000,000, and was granted
non-statutory options to receive that number of shares of Common Stock of the
Company that would bring NYU's shareholdings in the Company's Common Stock to
1.75% of the outstanding shares as of the date that the paid in capital of
the Company is $10,000. On October 15, 1997 Axonyx Inc. issued 300,000
shares of Common Stock to NYU pursuant to this agreement. These options were
issued outside of the 1997 Stock Option Plan.
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with Dr. Blas
Frangione under which Dr. Frangione was granted non-statutory options to receive
that
<PAGE>
29
number of shares of Common Stock of the Company that would bring Dr.
Frangione's shareholdings in the Company's Common Stock to 0.625% of the
outstanding shares as of the date that the paid in capital of the Company is
$5,000,000, and was granted non-statutory options to receive that number of
shares of Common Stock of the Company that would bring Dr. Frangione's
shareholdings in the Company's Common Stock to 0.875% of the outstanding
shares as of the date that the paid in capital of the Company is $10,000,000.
On November 3, 1997, Axonyx Inc. issued 150,000 shares of Common Stock.
These options were issued outside of the 1997 Stock Option Plan.
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with Dr.
Claudio Soto under which Dr. Soto was granted non-statutory options to receive
that number of shares of Common Stock of the Company that would bring Dr. Soto's
shareholdings in the Company's Common Stock to 0.625% of the outstanding shares
as of the date that the paid in capital of the Company is $5,000,000, and was
granted non-statutory options to receive that number of shares of Common Stock
of the Company that would bring Dr. Soto's shareholdings in the Company's Common
Stock to 0.875% of the outstanding shares as of the date that the paid in
capital of the Company is $10,000,000. On October 1, 1997, Axonyx Inc. issued
150,000 shares of Common Stock. These options were issued outside of the 1997
Stock Option Plan.
On August 27, 1997, Axonyx Inc. granted a director of the Company 500,000
shares of Common Stock subject to a two year vesting schedule in consideration
of services rendered and to be rendered to the Company under a Vesting Agreement
dated August 27, 1997.
On August 28, 1997, Ionosphere, Inc. issued 3,000,000 shares of Common
Stock, par value $0.001 to Ionosphere, LLC for cash of $4,200.00 and a note
receivable for $45,000.00 due August 28, 1999, with interest at 8% per annum.
T.J. Jesky, the President and CEO of Ionosphere, Inc. was the sole managing
member of Ionosphere, LLC. The note receivable was paid off on May 19, 1998.
On April 27, 1998, Axonyx Inc. issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. (BBI) in the amount of $125,000, evidencing a loan
from BBI in that amount. This loan is convertible at $4.00 per share of Common
Stock (pre-split). The loan bears interest at 9% per annum, with interest
payments due annually. The Note matures May 1, 2000. The Company is current in
its payment of interest on this Note.
On May 19, 1998 Ionosphere, Inc. issued 215,000 shares of Common Stock to
its founding shareholder, T.J. Jesky in consideration for the following: (1)
forgiveness of loans to Ionosphere, Inc. in the amount of $4,645, (2) a Note
Receivable issued on August 28, 1997 for $45,000.00 was paid off, (3) accrued
interest on the Note Receivable in the amount of $2,604.00 was paid off, and
(4) a Deed of Trust for $260,000.00.
Pursuant to a private offering of certain of the Axonyx Inc.'s securities
between August 24, 1998 and December 28, 1998 (the August 1998 Offering), Axonyx
Inc. issued an aggregate of 103 units at $25,000 per unit to 66 accredited and
otherwise qualified investors based on their financial resources and knowledge
of investments. In addition, each of the investors was provided with
information and had access to relevant information about Axonyx Inc.
Accordingly, the issuance of the securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 506 of the Securities Act. Each unit
("Unit") consisted of 10,000 shares of Common Stock, par value $0.001 (the
"Shares"), and 10,000 Stock Purchase Warrants (the "Warrants") at a price of
$25,000 per Unit. Each Warrant entitled the holder to purchase one Share at a
price of $3.75 until their expiration on October 1, 2001. The minimum
investment was one Unit or $25,000, although Axonyx Inc., in its discretion,
accepted subscriptions for one half Units from
<PAGE>
30
some investors. Axonyx Inc. received gross cash proceeds of $2,550,000 in
the August 1998 Offering.
On September 1, 1998, Axonyx Inc. issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. in the amount of $75,000.00, evidencing a loan
from BBI in that amount. This loan is convertible at $2.00 per share of Common
Stock. The Note bears interest at 9% per annum, with interest payments due
annually. The Note matures September 1, 2000. The Company is current in its
payment of interest on this Note.
On December 28, 1998 an Agreement of Merger between Axonyx Inc., a
Delaware corporation, and Ionosphere, Inc., a Nevada corporation, became
effective. Ionosphere, Inc. was the surviving corporation in the merger
(which represented a recapitalization for accounting purposes). Two days
after the merger, on December 30, 1998 Ionosphere, Inc. amended its Articles
of Incorporation to change its name to Axonyx Inc. The merger was
consummated upon the issuance of 11,020,000 shares of Common Stock and
1,020,000 Common Stock purchase warrants of Ionosphere, Inc. to Axonyx Inc.
shareholders in exchange for their Axonyx Inc. shares and warrants
outstanding on the date of the merger. Pursuant to the merger, the
pre-merger shareholders of Ionosphere retained a total of 600,001 shares of
Common Stock (1,200,002 shares with application of the February 1999 2:1
forward stock split). As of January 1, 1999, the Company had 12,220,002
shares of Common Stock issued and outstanding (11,020,000 shares held by
Axonyx Inc. shareholders and 1,200,002 shares held by Ionosphere
shareholders), and 1,020,000 Common Stock purchase warrants issued to Axonyx
Inc. shareholders. Pursuant to the merger, the Company assumed the 150,000
options to purchase shares of Common Stock issued under the 1997 Axonyx Stock
Option Plan. On December 28, 1998 the officers and directors of Ionosphere,
Inc. resigned after appointing the directors of Axonyx Inc. to compose the
Board of Directors of Ionosphere, Inc. The business of the Company is the
same as that of the pre-merger predecessor company, Axonyx Inc. The Articles
of Merger were filed in Nevada and Delaware on December 30, 1998.
The management of Axonyx Inc. undertook this merger into Ionosphere, Inc.,
a company whose shares traded on the Electronic Bulletin Board and was covered
by three market makers, in order to increase the potential liquidity for its
shareholders, to create a benchmark for the pricing of its common stock, and to
advance the Company's goal of listing on the Nasdaq SmallCap Market.
On May 20, 1999, the Company initiated a private placement offering of up
to 200 units ("Units") to accredited, otherwise qualified investors based on
their financial resources and knowledge of investments and to non-U.S. persons
(the "May 1999 Offering"). In addition, each of the investors was provided with
information and had access to relevant information about the Company.
Accordingly, the issuance of the securities are exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 506 of the Securities Act. Each unit
("Unit") consists of 4,000 shares of Common Stock, par value $0.001 (the
<PAGE>
31
"Shares"), and 2,000 Stock Purchase Warrants (the "Warrants") at a price of
$25,000 per Unit. Each Warrant entitles the holder to purchase one Share at a
price of $11.00 until their expiration on August 1, 2004. The minimum
investment is one Unit or $25,000, although the Company, in its discretion, may
accept subscriptions for one half Units. The Company, as of August 2, 1999 had
received gross cash proceeds of $825,000 in the May 1999 Offering.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 25,000,000 shares of
Common Stock, $0.001 par value, of which 12,566,002 shares were outstanding as
of August 2, 1999. The Company is also authorized to issue up to 5,000,000
shares of Preferred Stock, $0.001 par value of which no shares are issued and
outstanding.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, of
which, as of the date of this amended Form 10-SB, 12,566,002 shares are
outstanding and held by at least 314 holders of record. All outstanding
shares are validly authorized and issued, fully paid and non-assessable.
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders.
Holders of Common Stock do not have cumulative voting rights. Holders of
Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution, or winding up of the Company,
holders of the shares are entitled to share ratably in all assets remaining
after payment of liabilities. Holders of the shares have no preemptive
rights and have no rights to convert their shares into any other securities.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, $0.001 par value. The Company has not designated any classes of
Preferred Stock. As of the date of this Form 10-SB no shares of Preferred Stock
are issued and outstanding.
COMMON STOCK PURCHASE WARRANTS
In connection with the Company's private offering of certain of the
Company's securities over the period August 24, 1998 to December 28, 1998, the
Company issued warrants to purchase 1,030,000 shares of Common Stock (the "1998
Warrants"). These 1998 Warrants are exercisable at $3.75 per share on or prior
to October 1, 2001, the expiration date of the 1998 Warrants. The Company may
call the 1998 Warrants for exercise if the average closing bid price for the
Company's Common Stock is equal to or greater than $7.50 per share of Common
Stock for any consecutive period of thirty days.
<PAGE>
32
In connection with the Company's on-going private offering of certain of
the Company's securities beginning May 20, 1999, the Company has issued warrants
to purchase 66,000 shares of Common Stock (the "1999 Warrants"). These 1999
Warrants are exercisable at $11.00 per share on or prior to August 1, 2004, the
expiration date of the 1999 Warrants. The Company may call the 1999 Warrants
for exercise if the average closing bid price for the Company's Common Stock is
equal to or greater than $20.00 per share of Common Stock for any consecutive
period of thirty days.
Except where indicated the following rights and obligations apply to
both the 1998 and 1999 Warrants (collectively the "Warrants"). Warrant
holders do not have any voting or any other rights as stockholders of the
Company. The exercise price and the number of shares of Common Stock
issuable on exercise of the Warrants are subject to adjustment in certain
circumstances against dilution, including reorganization, consolidation,
merger, sale or conveyance of all or substantially all of its assets, or if
the Company shall by subdivision, combination or reclassification of
securities, change the Warrant Stock into the same or a different number of
securities. The Warrants may be exercised upon the surrender of the Warrant
Certificate on or prior to the expiration date (or earlier redemption date)
of such Warrant at the offices of the Company's transfer agent, with the form
of a Notice of Exercise , completed and executed, accompanied by payment of
the full 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. Pursuant to Registration Rights Agreements, certain
piggy-back registration rights apply respectively to the Warrant Stock
issuable upon exercise of the 1998 and 1999 Warrants. The Company is not
required to issue fractional shares upon the exercise of the Warrants.
OPTIONS.
As of August 2, 1999, the Company had options outstanding to purchase an
aggregate of approximately 804,000 shares of Common Stock of the Company at
prices ranging from $0.001 to $3.11 per share and for exercise periods
ranging from 12/1/2000 to 1/1/2009, except for the 153,960 options granted to
NYU, Dr. Blas Frangione and Dr. Claudio Soto that have exercise periods
pegged to the dates on which the Company achieves certain equity
capitalization milestones.
CONVERTIBLE PROMISSORY NOTES.
On April 27, 1998, the Company issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. in the amount of $125,000 and on September 1,
1998, the Company issued a Nine Percent Convertible Note to BBI in the amount
of $75,000.00 (collectively, the "Notes"), each respectively evidencing loans
from BBI in those amounts. These loans are convertible at $2.00 per share of
Common Stock (post split price). Each Note bears interest at 9% per annum,
with interest payments due annually. The Notes mature on May 1, 2000 and
September 1, 2000, respectively, unless prepaid by the Company prior thereto
or converted into shares of Common Stock at $2.00 per share at the Holder's
discretion.
<PAGE>
33
Currently, there are $200,000 of Notes outstanding. All interest on the
Notes has been paid by the Company and neither of the Notes are in default.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "AXYX" and commenced its trading under that symbol on January 4, 1999.
Prior to the merger the Common Stock was quoted under the symbol "IONO" with
trading commencing beginning July 23, 1998. The following table sets forth
the high and low bid quotations for the Common Stock for the periods
indicated. These quotations reflect prices between dealers, do not include
retail mark-ups, mark-downs, and commissions and may not necessarily
represent actual transactions. These bid quotations have been adjusted
retroactively by the pre-merger company Ionosphere, Inc.'s one for two
reverse stock split in conjunction with the merger on December 28, 1998 and
the Company's two for one forward stock split of February 23, 1999.
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
Third Quarter ended 9/30/98 $3.00 $0.25
Fourth Quarter ended 12/31/98 $5.50 $0.25
First Quarter ended 3/31/99 $9.25 $2.50
Second Quarter ended 6/30/99 $11.00 $6.00
July 1, 1999 to August 2, 1999 $9.25 $8.25
</TABLE>
The transfer agent of the Company is Nevada Agency and Trust Company, 50
West Liberty Street, Suite 880, Reno, Nevada 89501.
As of August 2, 1999 there were approximately 314 holders of record of the
Company's Common Stock, of which 12,566,002 were issued and outstanding.
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
<PAGE>
34
ITEM 2. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings, and there are no
material pending legal proceedings of which the Company is aware.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Pursuant to the merger between Ionosphere, Inc. and Axonyx Inc., the
management of the Company decided, on a post merger basis, to retain Richard A.
Eisner & Company, LLC ("RAE") as independent auditors of the Company. RAE had
audited the financial statements of Axonyx Inc. for the fiscal year ended
December 31, 1997. The Board of Directors of Axonyx Inc. appointed RAE as
accountants for the Company on December 1, 1998 to audit the financial
statements of the Company for the year ending December 31, 1998. This decision
was ratified at a Special Meeting of Shareholders of Axonyx Inc. on December 28,
1998 concurrent with the consummation of the merger.
Barry L. Friedman, CPA of 1582 Tulita Drive, Las Vegas, NV 89123 audited
the financial statements of Ionosphere, Inc. for the periods from July 29, 1997
(inception) to August 31, 1997, from inception to December 31, 1997, from
inception to March 3, 1998, and from January 1, 1998 to May 21, 1998. During
the engagement of Mr. Friedman as independent auditors of Ionosphere, Inc.,
there were no disagreements between the Company and either auditor on any matter
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. Mr. Friedman noted Ionosphere, Inc.'s lack of operations
and revenue and its need for additional capital. These factors raised
substantial doubt about Ionosphere, Inc.'s ability to continue as a going
concern. Mr. Friedman was dismissed as Ionosphere, Inc.'s independent auditor
on December 6, 1998 by Board of Directors resolution, the date on which James E.
Slayton, CPA, was appointed as Ionosphere, Inc.'s interim independent auditor.
The change of independent auditors was made on the basis of the relative fees
charged by each individual and the time constraints imposed by the pending
merger.
James E. Slayton, CPA of 3867 West Market St., Suite 208, Akron, OH
44333 audited the balance sheet of Ionosphere, Inc. as of November 30, 1998
and the statements of operations, stockholder's equity and cash flows for the
period January 1, 1998 to November 30, 1998. During the engagement of Mr.
Slayton as the independent auditor of Ionosphere, Inc., there were no
disagreements between the Company and Mr. Slayton on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Mr. Slayton noted Ionosphere, Inc.'s lack of revenue and its need
for additional capital. These factors raised substantial doubt about
Ionosphere, Inc.'s ability to continue as a going concern.
<PAGE>
35
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(Numbers for Ionosphere, Inc. shares issued prior to the merger are adjusted
retroactively to reflect the 1 for 2 reverse split on December 28, 1998.)
On March 5, 1997, Axonyx Inc. issued 4,300,000 shares of Common Stock to
Boundary Bay Investments Ltd. Of these shares, 3,300,000 shares of Common Stock
were issued upon assignment of option rights to certain exclusive patent rights,
and 1,000,000 shares of Common Stock were issued for the commitment of an
investment of $400,000 pursuant to an Investment Agreement dated February 18,
1997. The Company received $400,000 over a one year period between March 7,
1997 and February 4, 1998. The issuance of the securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2).
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with NYU
under which NYU was granted non-statutory options to receive that number of
shares of Common Stock of the Company that would bring NYU's shareholdings in
the Company's Common Stock to 1.25% of the outstanding shares as of the date
that the paid in capital of the Company is $5,000,000, and was granted
non-statutory options to receive that number of shares of Common Stock of the
Company that would bring NYU's shareholdings in the Company's Common Stock to
1.75% of the outstanding shares as of the date that the paid in capital of
the Company is $10,000,000. On October 15, 1997 Axonyx Inc. issued 300,000
shares of Common Stock to NYU pursuant to this agreement. These options were
issued outside of the 1997 Stock Option Plan. The issuance of the securities
was exempt from the registration requirements of the Securities Act pursuant
to the exemption set forth in Section 4(2).
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with Dr. Blas
Frangione under which Dr. Frangione was granted non-statutory options to receive
that number of shares of Common Stock of the Company that would bring Dr.
Frangione's shareholdings in the Company's Common Stock to 0.625% of the
outstanding shares as of the date that the paid in capital of the Company is
$5,000,000, and was granted non-statutory options to receive that number of
shares of Common Stock of the Company that would bring Dr. Frangione's
shareholdings in the Company's Common Stock to 0.875% of the outstanding shares
as of the date that the paid in capital of the Company is $10,000,000. On
November 3, 1997, Axonyx Inc. issued 150,000 shares of Common Stock. These
options were issued outside of the 1997 Stock Option Plan. The issuance of the
securities was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2).
On April 3, 1997, Axonyx Inc. signed a Stock Option Agreement with Dr.
Claudio Soto under which Dr. Soto was granted non-statutory options to receive
that number of shares of Common Stock of the Company that would bring Dr. Soto's
shareholdings in the Company's Common Stock to 0.625% of the outstanding shares
as of the date that the paid in capital of the Company is $5,000,000, and was
granted non-
<PAGE>
36
statutory options to receive that number of shares of Common Stock of the
Company that would bring Dr. Soto's shareholdings in the Company's Common
Stock to 0.875% of the outstanding shares as of the date that the paid in
capital of the Company is $10,000,000. On October 1, 1997, Axonyx Inc.
issued 150,000 shares of Common Stock. These options were issued outside of
the 1997 Stock Option Plan. The issuance of the securities was exempt from
the registration requirements of the Securities Act pursuant to the exemption
set forth in Section 4(2).
On August 27, 1997, Axonyx granted a director of the Company 500,000 shares
of Common Stock subject to a two year vesting schedule in consideration of
services rendered and to be rendered to the Company under a Vesting Agreement
dated August 27, 1997. The issuance of the securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2).
Between October 15, 1997 and March 3, 1998 Ionosphere, Inc. issued 750,000
shares of Common Stock par value $0.001 at a price of $0.05 per share to 29
investors in a private offering registered with the State of Nevada pursuant to
N.R.S. 90.490. Ionosphere, Inc. received gross cash proceeds of $37,500 in this
offering. The issuance of the shares was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 504 of the Securities Act.
On April 27, 1998, the Company issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. (BBI) in the amount of $125,000, evidencing a loan
from BBI in that amount. This loan is convertible at $4.00 per share of Common
Stock (pre-split). The loan bears interest at 9% per annum, with interest
payments due annually. The Note matures May 1, 2000. The issuance of the
securities was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2).
On November 16, 1998, Ionosphere, Inc. completed a private stock offering
that was registered with the State of Nevada pursuant to N.R.S. 90.490 and was
exempt from federal registration requirements pursuant to Regulation D, Rule 504
of the Securities Act. Ionosphere, Inc. issued 350,000 shares of Common Stock
to two accredited investors at a price of $0.10 per share for total cash
proceeds of $35,000.00.
Pursuant to a private offering of certain of the Axonyx Inc.'s securities
between August 24, 1998 and December 28, 1998 (the August 1998 Offering), Axonyx
Inc. issued an aggregate of 103 units at $25,000 per unit to 66 accredited and
otherwise qualified investors based on their financial resources and knowledge
of investments. In addition, each of the investors was provided with
information and had access to relevant information about Axonyx Inc.
Accordingly, the issuance of the securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 506 of the Securities Act. Each unit
("Unit") consisted of 10,000 shares of Common Stock, par value $0.001 (the
"Shares"), and 10,000 Stock Purchase Warrants (the "Warrants") at a price of
$25,000 per Unit.
<PAGE>
37
Each Warrant entitled the holder to purchase one Share at a price of $3.75
until their expiration on October 1, 2001. The minimum investment was one
Unit or $25,000, although Axonyx Inc., in its discretion, accepted
subscriptions for one half Units from some investors. Axonyx Inc. received
gross cash proceeds of $2,550,000 in the August 1998 Offering.
On September 1, 1998, Axonyx Inc. issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. in the amount of $75,000.00, evidencing a loan
from BBI in that amount. This loan is convertible at $4.00 per share of Common
Stock (pre-split). The Note bears interest at 9% per annum, with interest
payments due annually. The Note matures September 1, 2000. The issuance of the
securities was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2).
On December 28, 1998 an Agreement of Merger between Axonyx Inc., a
Delaware corporation, and Ionosphere, Inc., a Nevada corporation, became
effective. Ionosphere, Inc. was the surviving corporation in the merger
(which represented a recapitalization for accounting purposes). The merger
was consummated upon the issuance of 11,020,000 shares of Common Stock and
1,020,000 Common Stock purchase warrants of Ionosphere, Inc. to Axonyx Inc.
shareholders in exchange for their shares and warrants outstanding on the
date of the merger. Pursuant to the merger, the pre-merger shareholders of
Ionosphere retained a total of 600,001 shares of Common Stock (1,200,002
shares with application of the February 1999 2:1 forward stock split). As of
January 1, 1999, the Company had 12,220,002 shares of Common Stock issued and
outstanding (11,020,000 shares held by Axonyx Inc. shareholders and 1,200,002
shares held by Ionosphere shareholders), and 1,020,000 Common Stock purchase
warrants issued to Axonyx Inc. shareholders. The issuance of the securities
was exempt from the registration requirements of the Securities Act pursuant
to the exemption set forth in Section 4(2).
On May 20, 1999, the Company initiated a private placement offering of up
to 200 units ("Units") to accredited, otherwise qualified investors based on
their financial resources and knowledge of investments and to non-U.S. persons
(the "May 1999 Offering"). In addition, each of the investors was provided with
information and had access to relevant information about the Company.
Accordingly, the issuance of the securities are exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 506 of the Securities Act. Each unit
("Unit") consists of 4,000 shares of Common Stock, par value $0.001 (the
"Shares"), and 2,000 Stock Purchase Warrants (the "Warrants") at a price of
$25,000 per Unit. Each Warrant entitled the holder to purchase one Share at a
price of $11.00 until their expiration on August 1, 2004. The minimum
investment was one Unit or $25,000, although the Company, in its discretion, may
accept subscriptions for one half Units. The Company, as of August 2, 1999 had
sold 33 Units and received gross cash proceeds of $825,000 in the May 1999
Offering.
<PAGE>
38
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Indemnification of officers and directors of Axonyx Inc. is governed by
the relevant provisions of the Nevada General Corporation Law, the Articles
of Incorporation and the By-Laws of the Company. The relevant sections of
the Articles of Incorporation and the By-Laws of the Company are set forth
below. The Nevada General Corporation Law generally allows a corporation to
indemnify any particular officer and director who was or is a party or is
threatened to be made a party to an action, suit or proceeding, except for an
action by or in the right of the corporation, by reason of the fact that he
is or was an officer or director of the corporation. Any such
indemnification may be authorized by the corporation in a specific case upon
a determination that such indemnification of the officer or director is
proper under the circumstances. Such determination must be made by the
stockholders of the corporation, by a majority vote of a quorum of directors
who were not parties to the action, suit or proceeding, or under certain
circumstances, by independent legal counsel in a written opinion.
The indemnification provisions provided in Section 78.751 of the Nevada
General Corporation Law, the Articles of Incorporation of the Company and
By-Laws of the Company shall include, but not be limited to, reimbursement of
all fees, including amounts paid in settlement and attorney's fees actually
and reasonably incurred, in connection with the defense or settlement of any
action or suit if such party to be indemnified acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of
the Company. Indemnification may not be made for any claim, issue or matter
as to which the person claiming after exhaustion of all appeals therefrom to
be liable to the Company for amounts paid in settlement to the Company unless
and only to the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon application that the
person is fairly and reasonably entitled to indemnification for such expenses
as the court deems proper.
ARTICLE XI OF THE ARTICLES OF INCORPORATION OF THE COMPANY PROVIDES AS
FOLLOWS:
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of the Nevada
Revised Statutes of the State of Nevada, as the same may be amended and
supplemented. The corporation shall indemnify any person who incurs expenses by
reason of the fact that he or she is or was an officer, director, employee or
agent of the corporation. This indemnification shall be mandatory on all
circumstances in which indemnification is permitted by law.
ARTICLE VI OF THE BY-LAWS OF THE COMPANY PROVIDES AS FOLLOWS:
The corporation shall, to the maximum extent and in the manner permitted by
the Nevada Revised Statutes, indemnify each of its directors and officers
against expenses (including attorneys' fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.1, a
<PAGE>
39
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at
the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the Nevada Revised Statutes.
PART F/S
The following financial statements of Axonyx Inc. are filed as part of this
registration statement on Form 10-SB:
Balance sheet as of December 31, 1998.
Statements of operations for the year ended December 31, 1998, and for the
periods from January 9, 1997 (commencement of operations) through December 31,
1997 and through December 31, 1998.
Statements of changes in stockholders' equity for the year ended December 31,
1998 and for the period from January 9, 1997 (commencement of operations)
through December 31, 1997.
Statements of cash flows for the year ended December 31, 1998, and for the
periods from January 9, 1997 through December 31, 1997 and through December 31,
1998.
Balance sheet as March 31, 1999 (unaudited)
Statements of operations for the three months ended March 31, 1999 and 1998, and
January 9, 1997 (commencement of operations) through March 31, 1999 (unaudited).
Statements of cash flows for the three months ended March 31, 1999, and 1998,
and January 9, 1997 (commencement of operations) through March 31, 1999
(unaudited).
<PAGE>
AXONYX INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
AXONYX INC.
(a development stage company)
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of December 31, 1998 F-3
Statements of operations for the year ended December 31, 1998,
and for the periods from January 9, 1997 (commencement of
operations) through December 31, 1997 and through
December 31, 1998 F-4
Statements of changes in stockholders' equity for the year ended
December 31, 1998 and for the periods from January 9, 1997
(commencement of operations) through December 31, 1997 and
through December 31, 1998 F-5
Statements of cash flows for the year ended December 31, 1998,
and for the periods from January 9, 1997 (commencement of
operations) through December 31, 1997 and through
December 31, 1998 F-6
Notes to financial statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Axonyx Inc.
We have audited the accompanying balance sheet of Axonyx Inc. (a development
stage company) as of December 31, 1998 and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended, for the
periods from January 9, 1997 (commencement of operations) through December 31,
1997 and through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Axonyx Inc. as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended, and for the periods from January 9, 1997 through December 31, 1997 and
through December 31, 1998, in accordance with generally accepted accounting
principles.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 15, 1999
With respect to Note G[5]
February 23, 1999
F-2
<PAGE>
AXONYX INC.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,558,000
Stock subscriptions receivable 750,000
Other assets 4,000
------------
Total current assets 2,312,000
Equipment, net 1,000
------------
$ 2,313,000
------------
------------
LIABILITIES
Current liabilities:
Accrued expenses $ 119,000
Convertible notes payable and accrued interest 210,000
------------
Total liabilities 329,000
------------
Commitments
STOCKHOLDERS' EQUITY (Note A)
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common stock - $.001 par value, 25,000,000 shares authorized; 12,220,002 shares issued
and outstanding 12,000
Additional paid-in capital 3,363,000
Unearned compensation - stock/options (41,000)
Deficit accumulated during the development stage (1,350,000)
------------
Total stockholders' equity 1,984,000
------------
$ 2,313,000
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 9, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 353,000 $ 482,000 $ 835,000
General and administrative 289,000 216,000 505,000
------------ ------------ ------------
Loss from operations (642,000) (698,000) (1,340,000)
Interest expense (10,000) 0 (10,000)
------------ ------------ ------------
NET LOSS/COMPREHENSIVE LOSS $ (652,000) $ (698,000) $ (1,350,000)
------------ ------------ ------------
------------ ------------ ------------
NET LOSS PER COMMON SHARE-BASIC AND DILUTED $ (.07) $ (.08)
------------ ------------
------------ ------------
WEIGHTED AVERAGE SHARES-BASIC AND DILUTED 9,886,000 $ 9,230,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Note A)
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
------------------------ UNEARNED ACCUMULATED
NUMBER ADDITIONAL COMPENSATION - DURING THE TOTAL
OF PAID-IN STOCK/ DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL OPTIONS STAGE EQUITY
------------ --------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of founders'
common stock at $.001
per share 7,900,000 $ 8,000 $ (6,000) $ 2,000
Issuance of common
stock - March 5, 1997
at $.40 per share 1,000,000 1,000 399,000 400,000
Issuance of common
stock to New York
University and scientists
at $.40 per share for
services - April 1, 1997 600,000 1,000 239,000 240,000
Common stock issued to
officer - August 27, 1997 500,000 190,000 $ (190,000) 0
Stock options granted 57,000 (57,000) 0
Amortization 88,000 88,000
Net loss $ (698,000) (698,000)
------------ --------- ------------ --------------- ------------- -------------
BALANCE - DECEMBER 31,
1997 10,000,000 10,000 879,000 (159,000) (698,000) 32,000
Issuance of common stock
and warrants (net of
expenses of $16,000)
October 9, 1998 to
December 31, 1998 at
$25,000 per unit 1,020,000 1,000 2,533,000 2,534,000
Shares deemed issued to
stockholders (net
of costs of $52,000) -
December 28, 1998 1,200,002 1,000 (49,000) (48,000)
Amortization 118,000 118,000
Net loss (652,000) (652,000)
------------ --------- ------------ --------------- ------------- -------------
BALANCE - DECEMBER 31,
1998 12,220,002 $ 12,000 $ 3,363,000 $ (41,000) $ (1,350,000) $ 1,984,000
------------ --------- ------------ --------------- ------------- -------------
------------ --------- ------------ --------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 9, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1998 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (652,000) $ (698,000) $ (1,350,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 118,000 88,000 206,000
Cost of services paid with common stock 240,000 240,000
Depreciation 1,000 1,000
Changes in:
Accrued expenses and interest 67,000 62,000 129,000
------------- ------------ ------------
Net cash used in operating activities (467,000) (307,000) (774,000)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,000) (2,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 200,000 200,000
Net proceeds from issuance of common stock and warrants 1,854,000 332,000 2,186,000
Cost of merger (52,000) (52,000)
------------- ------------ ------------
Net cash provided by financing activities 2,002,000 332,000 2,334,000
------------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,535,000 23,000 1,558,000
Cash and cash equivalents at beginning of period 23,000 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,558,000 $ 23,000 $ 1,558,000
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - THE COMPANY
lonosphere, Inc. ("lonosphere"), an inactive corporation, was incorporated in
the State of Nevada on July 29, 1997. Effective December 28, 1998, Axonyx Inc.
("Axonyx" or the "Company"), a Delaware corporation (formed September 1996),
merged into Ionosphere, an inactive corporation. The merger was consummated
through an exchange of shares that resulted in the former Axonyx stockholders
receiving control of Ionosphere (see below for further discussion). The merger
has been treated as a capital transaction for accounting purposes. In connection
therewith, Axonyx's historic capital accounts were retroactively adjusted to
reflect the equivalent number of shares issued by Ionosphere in the transaction
while Axonyx's historical accumulated deficit was carried forward. The
operations reflect those of Axonyx from the commencement of its operations
(January 9, 1997). On December 28, 1998, Ionosphere changed its name to Axonyx
Inc. Through December 31, 1998, the Company has been in the development stage
and has conducted no revenue producing activities. The Company's efforts are
devoted to the discovery, development and acquisition of proprietary
pharmaceutical compounds and new technologies useful for the treatment of
cognitive disorders including Alzheimer's Disease. In September 1996, the
Company obtained an assignment of an option to negotiate a research and license
agreement with New York University. The agreement covers the exclusive worldwide
rights to a research project entitled "A New Therapeutic Approach for
Alzheimer's Disease: Design of Anti-Amyloid Inhibitors of Amyloidogenesis" (see
Note C). In addition, the assignment included the rights to acquire a license to
certain proprietary bio-medical technology, patents and related intellectual
property concerning an early stage compound known as "Phenserine" (see Note D).
3,300,000 shares of common stock were issued in exchange for these assignments
of option rights.
As discussed above, the merger between Axonyx and Ionosphere is accounted for as
a recapitalization. In accordance with the merger, Ionosphere issued 11,020,000
shares of its capital stock and 1,020,000 stock purchase warrants to the
stockholders of Axonyx in exchange for the outstanding common shares and
warrants of Axonyx.
The Company is subject to those risks associated with development stage
companies. The Company has sustained recurring losses since inception and
additional financing will be required by the Company to fund its research and
development activities and to support operations. However, there is no assurance
that the Food and Drug Administration will grant approval to the Company's
products or that profitable operations can be attained.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] CASH EQUIVALENTS:
The Company considers all short-term investments with a maturity of three
months or less to be cash equivalents.
[2] EQUIPMENT:
Equipment is carried at cost less an allowance for depreciation.
Depreciation is recorded using the straight-line method over its
estimated useful life of five years.
[3] RESEARCH, DEVELOPMENT AND PATENT:
Research and development costs including certain costs related to patent
applications are charged to operations as incurred.
F-7
<PAGE>
AXONYX INC.
(a development stage company)
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
[5] STOCK-BASED COMPENSATION:
The Company accounts for its employee stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees" and discloses the pro forma effects on net loss had the fair
value of options been expensed. Under the provisions of APB 25,
compensation cost for stock options is measured as the excess, if any, of
the fair value of the Company's common stock at the date of the grant
over the amount an employee must pay to acquire the stock.
[6] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash and accrued expenses approximates their fair
value due to the short period to maturity of these instruments. The fair
value of the convertible notes payable are not readily determinable due
to the related party nature of those instruments.
[7] NET LOSS PER COMMON SHARE:
Statement of Financial Accounting Standards No.128, "Earnings Per Share"
("SFAS 128") requires the reporting of basic and diluted earnings/loss
per share. Basic loss per share is calculated by dividing net loss by the
weighted average number of outstanding common shares during the year. As
all potential common shares are anti-dilutive, the effects of options,
warrants and convertible securities are not included in the calculation
of diluted loss per share.
[8] RECENT PRONOUNCEMENTS:
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure," No. 130, "Reporting Comprehensive Income" and
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company believes that the above pronouncements will not
have a significant effect on the information presented in the financial
statements.
NOTE C - AGREEMENT WITH NEW YORK UNIVERSITY ("NYU")
In April 1997, the Company entered into a research and license agreement with
NYU, as amended to provide funding and sponsor the research relating to the
diagnosis and treatment of Alzheimer's Disease and other amyloidosis disorders,
in exchange for a payment of $25,000 upon signing of the agreement, sixteen
consecutive quarterly payments of $75,000 beginning on April 1, 1997, and
600,000 shares of common stock with a fair value of $240,000 (issued to NYU and
its scientists, collectively "NYU stockholders"). The agreement also provides
for
F-8
<PAGE>
AXONYX INC.
(a development stage company)
NOTE C - AGREEMENT WITH NEW YORK UNIVERSITY ("NYU") (CONTINUED)
payments to NYU aggregating $175,000 upon achieving certain clinical and
regulatory milestones. In addition, the Company has agreed to pay NYU
royalties of up to 4% of net product sales under the agreement with minimum
royalty payments of $150,000 beginning January 1, 2003 through the expiration
or termination of the agreement, as defined. Further, the Company is required
to use its best efforts to raise an aggregate of $5,000,000 through one or
more private placements of equity securities prior to April 1999, (excluding
grace period) under the terms of its amended agreement with NYU. As of
December 31, 1998, the Company has raised approximately $2,950,000 in equity
financing.
Since entering into the agreement, the Company has paid $550,000 to NYU.
NOTE D - AGREEMENT WITH CURE, L.L.C. ("CURE")
On February 27, 1997, the Company entered into a sub-license agreement ("CURE
Agreement") with CURE where the Company would receive the rights covering the
patents that CURE obtained through the "PHS Patent License Agreement-Exclusive"
it entered into with the Public Health Service. The CURE Agreement provided for
a payment of $15,000 upon signing of the agreement and a payment of $10,000 six
months after the signing of the agreement. The CURE Agreement also provides for
payments to CURE aggregating $600,000 when certain clinical and regulatory
milestones are achieved. In addition, the Company has agreed to pay CURE
royalties of up to 3% of net product sales and sub-license royalties as defined
under the agreement, with minimum annual royalty payments of $10,000 beginning
on January 31, 2000 increasing to $25,000 per annum on commencement of sales of
the product until the expiration or termination of the agreement. Any royalty
payments made to CURE shall be credited against the minimum payments.
Since entering into the agreement, the Company has paid $25,000 to CURE.
NOTE E - INCOME TAXES
At December 31, 1998, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $427,000, expiring through
2012, that may be used to offset future taxable income. Approximately $46,000 of
such net operating loss carryforward is subject to an annual limitation as a
result of merger referred to in Note A.
The deferred tax consequences of temporary differences in reporting items for
tax and financial accounting purposes at December 31, 1998 result primarily
from certain expenses, aggregating $727,000 relating to research and
development which is not currently deductible. At December 31, 1998 and 1997,
the Company has deferred tax assets of approximately $466,000 and $222,000.
The Company has not recorded a benefit from its net operating loss
carryforward or expenses not currently deductible because realization of the
benefit is uncertain and, therefore, a valuation allowance of $466,000 has
been provided for the deferred tax asset.
NOTE F - RELATED PARTY TRANSACTIONS
During 1998 and 1997, a stockholder provided the Company the use of facilities.
There was no charge for such utilization of space. In addition, other
stockholders provided administrative support services to the Company without
remuneration. Such transactions were not material for the year ended December
31, 1998 and for the period from January 9, 1997 to December 31, 1997.
F-9
<PAGE>
AXONYX INC.
(a development stage company)
NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)
In April and September of 1998, the Company issued convertible notes for an
aggregate of $200,000 to a stockholder of the Company. The notes of $125,000 and
$75,000 are due May 1, 2000 and September 1, 2000, respectively and bear
interest at 9%. The Company may prepay the notes prior to maturity without
penalty provided written notice is given 30 days prior to prepayment. The notes
are convertible into common stock at $2 per share.
In September 1998, the Company entered into agreements with two executive
officers/stockholders for consulting services to be rendered to the Company.
Such arrangement provides for a base compensation of $7,000 per month through
December 31, 1998.
NOTE G - STOCKHOLDERS' EQUITY
[1] STOCKHOLDERS AGREEMENT:
Pursuant to a stockholders' agreement between NYU stockholders and
certain founding stockholders ("Founders"), such Founders may not
transfer any shares without written notice to NYU. In addition, Founders
shall not be granted registration rights unless NYU stockholders are
granted such rights on the same terms and conditions. Such agreement
terminates on an initial public offering.
[2] PRIVATE PLACEMENT:
During 1998, the Company sold 102 units in a private placement yielding
net proceeds of $2,534,000. Each unit consisted of 10,000 shares of
common stock and 10,000 warrants to purchase common stock (see Note
G[3]).
[3] WARRANTS:
At December 31, 1998 the Company has outstanding 1,020,000 warrants to
purchase common stock at $3.75 per share. Each warrant is exercisable
through October 1, 2001. The warrants are subject to call by the Company
if the average closing bid price of the Company's common stock is equal
to or greater than $7.50 per share for any consecutive thirty days.
[4] COMMON STOCK:
In August 1997, the Company granted an officer 500,000 shares of common
stock of which 250,000 shares vest through March 1, 1998 and thereafter
on a monthly basis through March 1, 1999. The Company valued these shares
at $190,000 which is being amortized over the vesting period. At December
31, 1998 437,446 shares were vested.
[5] STOCK SPLIT:
Effective February 23, 1999, the Company approved a 2 for 1 stock split
of its common stock. All share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the stock split.
F-10
<PAGE>
AXONYX INC.
(a development stage company)
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS:
The Company applies APB 25 and related interpretations in accounting for
its employee stock options. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires
the Company to elect either fair-value expense recognition or the
disclosure-only alternative for stock-based employee compensation. The
expense recognition provision encouraged by SFAS 123 would require
fair-value based financial accounting to recognize compensation expense
for the employee stock compensation plans. The Company has elected the
disclosure-only alternative.
During 1998, the Board of Directors and the stockholders of the Company
approved a Stock Option Plan ("1998 Plan") which provides for the
granting of options to purchase up to 2,000,000 shares of common stock,
pursuant to which officers, directors, advisors and consultants are
eligible to receive incentive and/or nonstatutory stock options. Options
granted under the 1998 Plan are exercisable for a period of up to 10
years from date of grant at an exercise price which is not less than the
fair value on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding capital
stock may not exceed five years and their exercise price shall be granted
at an option price not less than 110% of the fair value of the common
stock at date of grant. Vesting of 1998 Plan options varies from fully
vested at the date of grant to multiple year apportionment of vesting as
determined by the Board of Directors.
During the period ended December 31, 1997, Axonyx issued 150,000 options
at an exercise price below the fair value of the stock to a consultant.
Axonyx valued each of these options at $.38 representing the difference
between the fair value of the common stock and the option exercise price,
which will be amortized over the life of the respective agreements. In
connection with the merger, these options were exchanged for options
under the 1998 Plan with the same terms.
Disclosures required under SFAS 123 for employee stock options granted as
of December 31, 1998 and 1997 using the Black-Scholes option pricing
model prescribed by SFAS 123 are provided below.
The assumptions used and the weighted average information for the period
ended December 31, 1997 is as follows:
<TABLE>
<S> <C>
Risk-free interest rate 5.76 - 5.81
Expected dividend yield 0%
Expected live 10 years
Expected volatility 30%
Weighted average grant-date fair value of options
granted during the period $.38
</TABLE>
Management has determined that accounting for stock-based compensation
under SFAS 123 would not have a significant effect on pro forma net loss
for the year ended December 31, 1998 and for the period ended December
31, 1997 as the actual charge based on the intrinsic value approximates
the fair value of the stock options.
F-11
<PAGE>
AXONYX INC.
(a development stage company)
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS: (CONTINUED)
Stock option activity under the 1998 Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- ----------
<S> <C> <C>
Options issued in exchange 150,000 $ .02
-------
-------
Options at end of year 150,000 .02
-------
-------
Options exercisable at end of year 105,000 .02
-------
-------
Weighted average remaining contractual life
(in years) at end of year 1.92
----
----
</TABLE>
As of December 31, 1998, 1,850,000 options are available for future grant
under the 1998 Plan.
On January 13, 1999, the Company granted 580,600 options to employees and
consultants at exercise prices ranging from $2.88 to $3.11 per share under
the 1998 Plan.
In connection with the merger transaction (see Note A) the Company granted
a consultant 30,000 stock options outside the 1998 Plan. The options are
exercisable at $1.25 per share through January 5, 2001. In addition, the
options have certain piggyback registration rights.
In connection with the agreements entered into with NYU and its scientists
the Company granted certain options to purchase additional shares up to a
maximum of 6% of the outstanding shares of the Company at a purchase price
of $.001 per share. The option agreements provide for the purchase of
additional shares based on a formula when the Company's paid-in capital
reaches $5,000,000 and $10,000,000. The Company may be required to record
a charge to operations representing the fair value of the options when the
paid-in capital milestones are reached. For the period ended December 31,
1998 the options were not exercisable.
NOTE H - COMMITMENTS
In January 1998, the Company entered into a consulting agreement which required
a $5,000 payment upon signing and $5,000 plus the issuance of up to 2,000 shares
of common stock upon the achievement of certain milestones relating to
Phenserine. During 1998, $10,000 was paid to this consultant.
In February 1998, the Company contracted with an institution to provide certain
pharmaceutical services at a cost of $13,500. During 1998 the Company paid
$7,000 to this institution.
NOTE I - SUBSEQUENT EVENT
In January and February 1999, the Company collected the balance due on the
common stock subscription receivable.
F-12
<PAGE>
AXONYX INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
AXONYX INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
--------------- --------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,912,000 $ 1,558,000
Stock subscription receivable 50,000 750,000
Other 6,000 4,000
---------- -----------
Total current assets 1,968,000 2,312,000
Equipment, net 9,000 1,000
Other assets 7,000 -
---------- -----------
$1,984,000 $ 2,313,000
---------- -----------
---------- -----------
LIABILITIES
Current liabilities:
Accrued Expenses $ 95,000 $ 119,000
Convertible notes payable and accrued interest 215,000 210,000
---------- -----------
Total liabilities 310,000 329,000
---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common Stock - $.001 par value, 25,000,000 shares authorized; 12,230,002 12,000 12,000
and 12,210,002 shares issued and outstanding, respectively.
Additional paid-in capital 4,044,000 3,363,000
Unearned compensation - stock/options (551,000) (41,000)
Deficit accumulated during development stage (1,831,000) (1,350,000)
---------- -----------
Total stockholders' equity 1,674,000 1,984,000
---------- -----------
$1,984,000 $ 2,313,000
---------- -----------
---------- -----------
</TABLE>
F-13
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
January 9,
1997
(inception)
Three months ended through
March 31, March 31,
1999 1998 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 121,000 $ 86,000 $ 956,000
General and administrative 369,000 60,000 874,000
-------------- -------------- -------------
Loss from operations $ (490,000) $ (146,000) $ (1,830,000)
Interest income/(expense)-net 9,000 - (1,000)
-------------- -------------- -------------
Net loss $ (481,000) $ (146,000) $ (1,831,000)
-------------- -------------- -------------
-------------- -------------- -------------
Net loss per common share $ (0.04) $ (0.01)
Weighted average shares-basic and diluted 12,230,002 10,000,000
</TABLE>
F-14
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
January 9,
1997
(inception)
Three months ended through
March 31, March 31,
1999 1998 1999
--------------- -------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (481,000) $(146,000) $(1,831,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 151,000 30,000 357,000
Cost of services paid with common stock 240,000
Depreciation 1,000 - 2,000
Changes in:
other assets (9,000) - (9,000)
accrued expenses and interest (19,000) 27,000 110,000
---------- --------- -----------
Net cash used in operating activities (357,000) (89,000) (1,131,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,000) - (11,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 5,000 200,000
Net proceeds from issuance of common stock and warrants 720,000 20,000 2,906,000
Cost of merger - - (52,000)
---------- --------- -----------
Net cash provided by financing activities 720,000 25,000 3,054,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 354,000 (64,000) 1,912,000
Cash and cash equivalents at beginning of period 1,558,000 23,000 -
---------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,912,000 $ (41,000) $ 1,912,000
---------- --------- -----------
---------- --------- -----------
</TABLE>
F-15
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Axonyx Inc. (the "Company") herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the results of operations for the interim periods presented. Certain
information and footnote disclosure normally included in the financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements and
notes thereto should be read in conjunction with the financial statements and
the notes thereto for the year ended December 31, 1998 included in the Company's
Form 10-SB filing. The results for the interim periods are not necessarily
indicative of the results for the full fiscal year.
(2) NEW AGREEMENTS:
Effective as of May 17, 1999, Axonyx Inc. entered into a Development Agreement
and Right to License (the "Development Agreement") with Applied Research Systems
ARS Holding N.V., a wholly owned subsidiary of Ares Serono International, S.A
("Ares Serono"). Under the Development Agreement, the Company granted an
exclusive right to license its patent rights and know-how regarding its amyloid
inhibitory peptide (AIP) and prion inhibitory peptide (PIP) technology to Ares
Serono. Ares Serono paid Axonyx a fee for the right to license of $250,000.
The right to license has a one year term, renewable for an additional one year
period upon payment of an additional fee of $500,000. In addition Ares Serono
undertakes to conduct research on the AIP and PIP technology during the term of
the Development Agreement. The parties also agreed to the basic licensing terms
that will form the basis of a license agreement between the parties if Ares
Serono exercises its right to license.
F-16
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized on this 3rd day of August, 1999.
AXONYX INC.
(Registrant)
By: /s/ MARVIN S. HAUSMAN, M.D.
---------------------------
Marvin S. Hausman, M.D.
President, Chief Executive Officer, and
Director
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
Exhibits Description of Document
- -------- -----------------------
<S> <C>
2.1* Agreement of Merger between Axonyx Inc. and Ionosphere, Inc. dated
December 23, 1998
2.2* Articles of Merger (Delaware) dated December 28, 1998 and
Certificate of Correction dated March 10, 1999
2.3* Articles of Merger (Nevada) dated December 28, 1998
3.1* Restated Articles of Incorporation dated January 26, 1999
3.2* By-Laws
4.1* Form of Common Stock Purchase Warrant
4.2* Form of Registration Rights Agreement
4.3* Nine Percent Convertible Note issued by Axonyx Inc. to Boundary Bay
Investments Ltd. dated April 27, 1998 in the amount of $125,000.
4.4* Nine Percent Convertible Note issued by Axonyx Inc. to Boundary Bay
Investments Ltd. dated September 1, 1998 in the amount of $75,000
10.1* 1998 Stock Option Plan
10.2 Patent License Agreement- Exclusive between the Public Health
Service and CURE, LLC dated January 31, 1997
10.3* License Agreement between the Axonyx Inc. and CURE, LLC dated
February 27, 1997
10.4* Research and License Agreement between the Axonyx Inc. and New York
University dated April 1, 1997
10.5* Amendment to Research and License Agreement between Axonyx Inc. and
New York University dated August 25, 1998
10.6** Second Amendment to Research and License Agreement between Axonyx
Inc. and New York University dated March 19, 1999.
<PAGE>
10.7 Financial Consulting Agreement between Axonyx Inc. and Intertrend
Management, Ltd. dated November 6, 1998.
10.8*** Development Agreement and Right to License between the Company and
Applied Research Systems ARS Holding N.V. dated May 19, 1999.
10.9* Lease Agreement between the Company and Business Service Center of
Seattle dated January 28, 1999
10.10 Lease Agreement between the Company and Ziegler, Ziegler & Altman
LLP dated March 15, 1999
16.1 Letter from Barry L. Friedman, P.C. dated July 28, 1999
16.2 Letter from James E.Slayton, CPA dated August 9, 1999
</TABLE>
- --------------
* Incorporated by reference to the corresponding exhibits in the
Registration Statement on Form 10-SB previously filed by the
Company on March 17, 1999 (File no. 000-25571).
** Incorporated by reference to Form 8-K previously filed by the
Company on June 1, 1999.
*** Incorporated by reference to Form 10-Q previously filed by the
Company on June 30, 1999.
<PAGE>
PUBLIC HEALTH SERVICE
PATENT LICENSE AGREEMENT-EXCLUSIVE
COVER PAGE
For PHS internal use only:
Patent License Number: L-159-94/0________________________________________
Serial Numbers of Licensed Patents: 07/765,746 (U.S. Patent No.
5,171,750); 07/980,399 (U.S. Patent
No. 5,409,948); 08/096,207; and
08/182,301 (U.S. Patent No.
5,378,723).
Licensee: CURE, L.L.C.___________________________________________________
CRADA Number (if applicable): Not applicable_____________________________
Additional Remarks:______________________________________________________
_________________________________________________________________________
_________________________________________________________________________
This Patent License Agreement, hereinafter referred to as the "AGREEMENT,"
consists of this Cover Page, an attached Agreement, a Signature Page, Appendix A
(List of Patent(s) or Patent Application(s)), Appendix B (Fields of Use and
Territory), Appendix C (Royalties), Appendix D (Modifications), Appendix E
(Benchmarks), and Appendix F (Commercial Development Plan). The Parties to this
AGREEMENT are:
1) The National Institutes of Health ("NIH"), the Centers for Disease Control
and Prevention ("CDC"), or the Food and Drug Administration ("FDA"),
hereinafter singly or collectively referred to as "PHS," agencies of the
United States Public Health Service within the Department of Health and
Human Services ("DHHS"); and
2) The person, corporation, or institution identified above and/or on the
Signature Page, having offices at the address indicated on the Signature
Page, hereinafter referred to as "LICENSEE."
<PAGE>
PHS PATENT LICENSE AGREEMENT--EXCLUSIVE
PHS and LICENSEE agree as follows:
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral research, PHS
investigators made inventions that may have commercial
applicability.
1.02 By assignment of rights from PHS employees and other inventors,
DHHS, on behalf of the United States Government, owns intellectual
property rights claimed in any United States and foreign patent
applications or patents corresponding to the assigned inventions.
DHHS also owns any tangible embodiments of these inventions
actually reduced to practice by PHS.
1.03 The Assistant Secretary for Health of DHHS has delegated to PHS the
authority to enter into this AGREEMENT for the licensing of rights
to these inventions under 35 U.S.C. Sections 200-212, the Federal
Technology Transfer Act of 1986, 15 U.S.C. Section 3710a, and/or
the regulations governing the licensing of Government-owned
inventions, 37 CFR Part 404.
1.04 PHS desires to transfer these inventions to the private sector
through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.
1.05 LICENSEE desires to acquire commercialization rights to certain of
these inventions in order to develop processes, methods, or
marketable products for public use and benefit.
1.06 LICENSEE is a company specifically organized by a co-inventor of
one of the patented inventions for the development of these
inventions. The terms of this AGREEMENT were developed in
consideration of the LICENSEE'S status, present capital situation,
the fact that the LICENSEE was the sole applicant for a license
following public notification of the technology's availability for
licensing, and the remaining patent term of the LICENSED PATENT
RIGHTS, among other factors. The terms of this AGREEMENT are
intended to extend only t o the metes and bounds of this particular
situation as defined by these circumstances and are not intended to
represent a broad strategy for the licensing of PHS technologies.
2. DEFINITIONS
2.01 "BENCHMARKS" mean the performance milestones that are set forth in
Appendix E.
2.02 "COMMERCIAL DEVELOPMENT PLAN" means the written commercialization
plan attached as Appendix F.
2.03 "FIRST COMMERCIAL SALE" means the initial transfer by or on behalf
of LICENSEE or its sublicensees of LICENSED PRODUCTS or the initial
practice of a LICENSED PROCESS by or on behalf of LICENSEE or its
sublicensees in exchange for cash or some equivalent to which value
can be assigned for the purpose of determining NET SALES.
2.04 "GOVERNMENT" means the Government of the United States of America.
2.05 "LICENSED FIELDS OF USE" means the fields of use identified in
Appendix B.
2.06 "LICENSED PATENT RIGHTS" shall mean:
<PAGE>
a) U.S. patent applications and patents listed in Appendix A,
all divisions and continuations of these applications, all
patents issuing from such applications, divisions, and
continuations, and any reissues, reexaminations, and
extensions of all such patents;
b) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a)
above: i) continuations-in-part of a) above; ii) all
divisions and continuations of these continuations-in-part;
iii) all patents issuing from such continuations-in-part,
divisions, and continuations; and iv) any reissues,
reexaminations, AND EXTENSIONS OF ALL SUCH PATENTS;
c) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a)
above: all counterpart foreign applications and patents to a)
and b) above, including those listed in Appendix A.
LICENSED PATENT RIGHTS shall NOT include b) or c) above to the
extent that they contain one or more claims directed to new matter
which is not the subject matter disclosed in a) above.
2.07 "LICENSED PROCESS(ES)" means processes which, in the course of
being practiced would, in the absence of this AGREEMENT, infringe
one or more claims of the Licensed PATENT RIGHTS that have not been
held invalid or unenforceable by an unappealed or unappealable
judgment of a court of competent jurisdiction.
2.08 "LICENSED PRODUCT(S)" means tangible materials which, in the course
of manufacture, use, or sale would, in the absence of this
AGREEMENT, infringe one or more claims of the LICENSED PATENT
RIGHTS that have not been held invalid or unenforceable by an
unappealed or unappealable judgment of a court of competent
jurisdiction.
2.09 "LICENSED TERRITORY" means the geographical area identified in
Appendix B.
2.10 "NET SALES" means the total gross receipts for sales of LICENSED
PRODUCTS or practice of LICENSED PROCESSES by or on behalf of
Licensee, and from leasing, renting, or otherwise making LICENSED
PRODUCTS available to others without sale or other dispositions,
whether invoiced or not, less returns and allowances actually
granted, packing costs, insurance costs, freight out, taxes or
excise duties imposed on the transaction (if separately invoiced),
and wholesaler and cash discounts in amounts customary in the
trade. No deductions shall be made for commissions paid to
individuals, whether they be with independent sales agencies or
regularly employed by LICENSEE, or sublicensees, and on its
payroll, or for the cost of collections.
2.11 "PRACTICAL APPLICATION" means to manufacture in the case of a
composition or product, to practice in the case of a process or
method, or to operate in the case of a machine or system; and in
each case, under such conditions as to establish that the invention
is being utilized and that its benefits are to the extent permitted
by law or GOVERNMENT regulations available to the public on
reasonable terms.
2.12 "RESEARCH LICENSE" means a nontransferable, nonexclusive license to
make and to use the LICENSED PRODUCTS OR LICENSED PROCESSES as
defined by the LICENSED PATENT RIGHTS for purposes of research and
not for purposes of commercial manufacture or distribution or in
lieu of purchase.
2.13 "EFFECTIVE DATE" means the date on which the last party to sign has
executed this AGREEMENT.
<PAGE>
3. GRANT OF RIGHTS
3.01 PHS hereby grants and LICENSEE accepts, subject to the terms and
conditions of this AGREEMENT, an exclusive license under the
LICENSED PATENT RIGHTS in the LICENSED TERRITORY to make and have
made, to use and have used, and to sell and have sold any LICENSED
PRODUCTS in the LICENSED FIELDS OF USE and to practice and have
practiced any LICENSED PROCESSES in the LICENSED FIELDS OF USE.
3.02 This AGREEMENT confers no license or rights by implication,
estoppel, or otherwise under any patent applications or patents of
PHS other than LICENSED PATENT RIGHTS regardless of whether such
patents are dominant or subordinate to LICENSED PATENT RIGHTS.
4. SUBLICENSING
4.01 Upon written approval by PHS, which approval will not be
unreasonably withheld, LICENSEE may enter into sublicensing
agreements under the LICENSED PATENT RIGHTS.
4.02 LICENSEE agrees that any sublicenses granted by it shall provide
that the obligations to PHS of Paragraphs 5.01-5.04, 8.01, 10.01,
10.02, 12.05 and 13.07-13.09 of this AGREEMENT shall be binding
upon the sublicensee as if it were a party to this AGREEMENT.
Licensee further agrees to attach copies of these Paragraphs to all
sublicense agreements.
4.03 Any sublicenses granted by LICENSEE shall provide for the
termination of the sublicense, or the conversion to a license
directly between such sublicensees and PHS, at the option of the
sublicensee, upon termination of this AGREEMENT under Article 13.
Such conversion is subject to PHS approval and contingent upon
acceptance by the sublicensee of the remaining provisions of this
AGREEMENT.
4.04 LICENSEE agrees to forward to PHS a copy of each fully executed
sublicense agreement postmarked within thirty (30) days of the
execution of such agreement. To the extent permitted by law, PHS
agrees to maintain each such sublicense agreement in confidence.
5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 PHS reserves on behalf of the GOVERNMENT an irrevocable,
nonexclusive, nontransferable, royalty-free license for the
practice of all inventions licensed under the LICENSED PATENT
RIGHTS throughout the world by or on behalf of the GOVERNMENT and
on behalf of any foreign government or international organization
pursuant to any existing or future treaty or agreement to which the
GOVERNMENT is a signatory. Prior to the FIRST COMMERCIAL SALE,
LICENSEE agrees to provide PHS reasonable quantities of LICENSED
PRODUCTS or materials made through the LICENSED PROCESSES for PHS
research use, but PHS shall not make a request for materials prior
to thirty-six (36) months after the EFFECTIVE DATE, should the
AGREEMENT be in effect at that time.
5.02 LICENSEE agrees that products used or sold in the United States
embodying LICENSED PRODUCTS or produced through use of LICENSED
PROCESSES shall be manufactured substantially in the United States,
unless a written waiver is obtained in advance from PHS.
5.03 LICENSEE acknowledges that PHS may enter into future Cooperative
RESEARCH AND Development Agreements (CRADAS) under the Federal
Technology Transfer ACT of 1986 THAT relate to the subject matter
of this AGREEMENT. LICENSEE agrees not to unreasonably deny
requests for a Research License from such future collaborators with
PHS when acquiring such
<PAGE>
rights is necessary in order to make a CRADA project feasible.
LICENSEE may request an opportunity to join as a party to the
proposed CRADA.
5.04 In addition to the reserved license of Paragraph 5.01 above, PHS
reserves the right to grant such nonexclusive RESEARCH LICENSES
directly or to require LICENSEE to grant nonexclusive RESEARCH
LICENSES on reasonable terms. The purpose of this RESEARCH LICENSE
is to encourage basic research, whether conducted at an academic or
corporate facility. In order to safeguard the LICENSED PATENT
RIGHTS, however, PHS shall consult with LICENSEE before granting to
commercial entities a RESEARCH LICENSE or providing to them
research samples of the materials and shall cooperate with
LICENSEE'S reasonable requests to protect LICENSEE'S trade secret
rights and confidential business information.
6. ROYALTIES AND REIMBURSEMENT
6.01 LICENSEE agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty on the terms set forth in Appendix C.
6.02 LICENSEE agrees to pay to PHS a nonrefundable minimum annual
royalty as set forth in Appendix C. The first minimum annual
royalty payment shall be due and payable thirty-six (36) months
from the EFFECTIVE DATE and may be prorated according to the
fraction of the calendar year remaining between that date and the
next subsequent January 1, i.e., January 1, 2000. Subsequent
minimum annual royalty payments will be due and payable on January
I of each calendar year and shall be credited against any earned
royalties due for sales made in that year or sublicensing royalties
derived from sales made in that year.
6.03 LICENSEE agrees to pay PHS earned royalties as set forth in
Appendix C.
6.04 LICENSEE agrees to pay PHS benchmark royalties as set forth in
Appendix C.
6.05 LICENSEE agrees to pay PHS sublicensing royalties as set forth in
Appendix C.
6.06 A claim of a patent or patent application licensed under this
AGREEMENT shall cease to fall within the LICENSED PATENT RIGHTS for
the purpose of computing the minimum annual royalty, sublicensing
royalty, and earned royalty payments in any given country on the
earliest of the dates that a) the claim has been abandoned but not
continued, b) the patent expires or irrevocably lapses, or c) the
claim has been held to be invalid or unenforceable by an unappealed
or unappealable decision of a court of competent jurisdiction or
administrative agency.
6.07 No multiple royalties shall be payable because any LICENSED
PRODUCTS OR LICENSED PROCESSES are covered by more than one of the
LICENSED PATENT RIGHTS.
6.08 On sales of LICENSED PRODUCTS by LICENSEE to sublicensees or
affiliated parties or on sales made in other than an arm's-length
transaction, the value of the NET SALES attributed under this
Article 6 to such a transaction shall be that which would have been
received in an arm's-length transaction, based on sales of like
quantity and quality products on or about the time of such
transaction.
6.09 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the LICENSED PATENT RIGHTS incurred by PHS prior to
the effective date of this AGREEMENT, LICENSEE shall pay to PHS, as
an additional royalty, within sixty (60) days of PHS'S submission
of a statement and request for payment to LICENSEE, an amount
equivalent to such patent expenses previously incurred by PHS. PHS
shall
<PAGE>
not make such a statement and request prior to thirty-six (36)
months after the EFFECTIVE DATE, should the AGREEMENT be in effect
at that time.
6.10 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the LICENSED PATENT RIGHTS incurred by PHS on or
after the EFFECTIVE DATE, PHS, at its sole option, may require
LICENSEE:
(a) to pay PHS on an annual basis, within sixty (60) days of
PHS'S submission of a statement and request for payment, a royalty
amount equivalent to all such patent expenses incurred during the
previous calendar year(s); or
(b) to pay such expenses directly to the law firm employed by PHS
to handle such functions. However, in such event, PHS and not
LICENSEE shall be the client of such law firm.
Under exceptional circumstances, LICENSEE may be given the right to
assume responsibility for the preparation, filing, prosecution, or
maintenance of any patent application or patent included with the
LICENSED PATENT RIGHTS. In that event, LICENSEE shall directly pay
the attorneys or agents engaged to prepare, file, prosecute or
maintain such patent applications or patents and shall provide to
PHS copies of each invoice associated with such services as well as
documentation that such invoices have been paid.
6.11 LICENSEE may elect to surrender its rights in any country of the
LICENSED TERRITORY under any Licensed PATENT RIGHTS upon sixty (60)
days written notice to PHS and owe no payment obligation under
Article 6.10 for patent-related expenses incurred in that country
after the effective date of such written notice.
7. PATENT FILING, PROSECUTION, AND MAINTENANCE
7.01 Except as otherwise provided in this Article 7, PHS agrees to take
responsibility for, but to consult with, the LICENSEE in the
preparation, filing, prosecution, and maintenance of any and all
patent applications or patents included in the LICENSED PATENT
RIGHTS and shall furnish copies of relevant patent-related
documents to LICENSEE.
7.02 Upon PHS'S written request and LICENSEE'S acceptance of such
request in its reasonable discretion, LICENSEE shall assume the
responsibility for the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included
in the LICENSED PATENT RIGHTS and shall on an ongoing basis
promptly furnish copies of aU patent-related documents to PHS. In
such event, LICENSEE shall, subject to the prior approval of PHS,
select registered patent attorneys or patent agents to provide such
services on behalf of LICENSEE and PHS. PHS shau provide
appropriate powers of attorney and other documents necessary to
undertake such actions to the patent attorneys or patent agents
providing such services. LICENSEE and its attorneys or agents
shall consult with PHS in all aspects of the preparation, filing,
prosecution and maintenance of patent applications and patents
included within the LICENSED PATENT RIGHTS and shall provide PHS
sufficient opportunity to comment on any document that LICENSEE
intends to file or to cause to be filed with the relevant
intellectual property or patent office. PHS shall not make such a
request prior to thirty-six (36) months after the EFFECTIVE DATE,
should the AGREEMENT be in effect at that time.
7.03 At any time, PHS MAY provide LICENSEE with written notice that PHS
wishes to assume control of the preparation, filing, prosecution,
and maintenance of any and all patent applications or patents
included in the LICENSED PATENT RIGHTS. IF PHS elects to assume
such responsibilities, LICENSEE agrees to cooperate fully with PHS,
its attorneys and agents in the preparation, filing, prosecution,
and maintenance of any and all patent applications or patents
<PAGE>
included in the LICENSED PATENT RIGHTS and to provide PHS with
complete copies of any and all documents or other materials in
LICENSEE'S possession that PHS deems necessary to undertake such
responsibilities. LICENSEE shall be responsible for all costs
associated with transferring patent prosecution responsibilities to
an attorney or agent of PHS'S choice.
7.04 Each party shall promptly inform the other as to all matters that
come to its attention that may affect the preparation, filing,
prosecution, or maintenance of the LICENSED PATENT RIGHTS and
permit each other to provide comments and suggestions with respect
to the preparation, filing, and prosecution of Licensed PATENT
RIGHTS, which comments and suggestions shall be considered in good
faith by the other party.
8. RECORD KEEPING
8.01 Licensee agrees to keep accurate and correct records of LICENSED
PRODUCTS made, used, or sold and LICENSED PROCESSES practiced under
this Agreement appropriate to determine the amount of royalties due
PHS. Such records shall be retained for at least five (5) years
following the reporting period to which they apply. They shall be
available during normal business hours for inspection at the
expense of PHS by an accountant or other designated auditor
selected by PHS for the sole purpose of verifying reports and
payments hereunder. The accountant or auditor shall only disclose
to PHS information relating to the accuracy of reports and payments
made under this AGREEMENT. If an inspection shows an
underreporting or underpayment in excess of five percent (5%) for
any twelve (12) month period, then LICENSEE shall reimburse PHS for
the cost of the inspection at the time Licensee pays the unreported
royalties, including any late charges as required by Paragraph 9.08
of this AGREEMENT on such past-due unreported royalties. All
payments required under this Paragraph shall be due within thirty
(30) days of the date PHS provides LICENSEE notice of the payment
due.
8.02 Licensee agrees to conduct an independent audit of sales and
royalties at least every two years if annual sales of the LICENSED
PRODUCT or LICENSED PROCESSES are over two (2) million dollars.
The audit shall address, at a minimum, the amount of gross sales by
or on behalf of LICENSEE during the audit period, the amount of
funds owed to the GOVERNMENT under this AGREEMENT, and whether the
amount owed has been paid to the GOVERNMENT and is reflected in the
records of the LICENSEE. A report by the auditor shall be
submitted promptly to PHS on completion. LICENSEE shall pay for the
entire cost of the audit.
9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
9.01 Prior to signing this AGREEMENT, LICENSEE has provided to PHS the
COMMERCIAL DEVELOPMENT PLAN at Appendix F, under which LICENSEE
intends to bring the subject matter of the LICENSED PATENT RIGHTS
to the point of PRACTICAL APPLICATION. This COMMERCIAL DEVELOPMENT
PLAN is hereby incorporated by reference into this AGREEMENT.
Based on this plan, performance BENCHMARKS are determined as
specified in Appendix E.
9.02 LICENSEE shall provide written annual reports on its product
development progress Or efforts to commercialize under the
COMMERCIAL DEVELOPMENT PLAN for each of the LICENSED FIELDS OF Use
within sixty (60) days after December 31 of each calendar year.
These progress reports shall include, but not be limited to:
progress on research and development, status of applications for
regulatory approvals, manufacturing, sublicensing, marketing, and
sales during the preceding calendar year, as well as plans for the
present calendar year. PHS also encourages these reports to
include information on any of LICENSEE'S public service activities
that relate to the LICENSED PATENT RIGHTS. If reported progress
differs from that projected in the COMMERCIAL DEVELOPMENT PLAN and
BENCHMARKS, LICENSEE shall explain the reasons for such
differences. In any such annual report LICENSEE may propose
amendments to the
<PAGE>
COMMERCIAL DEVELOPMENT PLAN, acceptance of which by PHS may not
be denied unreasonably. LICENSEE agrees to provide any
additional information reasonably required by PHS to evaluate
LICENSEE'S performance under this AGREEMENT. LICENSEE may amend
the BENCHMARKS at any time upon written consent by PHS. PHS
shall not unreasonably withhold approval of any request of
LICENSEE to extend the time periods of this schedule if such
request is supported by a reasonable showing by LICENSEE of
diligence in its performance under the COMMERCIAL DEVELOPMENT
PLAN and toward bringing the LICENSED PRODUCTS to the point of
practical application as defined in 37 CFR 404.3(d). LICENSEE
shall amend the COMMERCIAL DEVELOPMENT PLAN and BENCHMARKS at the
request of PHS to address any LICENSED FIELDS OF Use not
specifically addressed in the plan originally submitted.
9.03 Licensee shall report to PHS the date of the FIRST COMMERCIAL SALE
in each country in the LICENSED TERRITORY within thirty (30) days
of such occurrence.
9.04 Licensee shall submit to PHS within sixty (60) days after each
calendar half-year ending June 30 and December 31 a royalty report
setting forth for the preceding half-year period the amount of the
LICENSED PRODUCTS sold or LICENSED PROCESSES practiced by or on
behalf of LICENSEE in each country within the LICENSED TERRITORY,
the NET Sales, and the amount of royalty accordingly due. With
each such royalty report, LICENSEE shall submit payment of the
earned royalties due. If no earned royalties are due to PHS for
any reporting period, the written report shall so state. The
royalty report shall be certified as correct by an authorized
officer of LICENSEE and shall include a detailed listing of all
deductions made under Paragraph 2. 10 to determine NET SALES made
under Article 6 to determine royalties due.
9.05 LICENSEE agrees to forward semi-annually to PHS a copy of such
reports received by LICENSEE from its sublicensees during the
preceding half-year period as shall be pertinent to a royalty
accounting to PHS by LICENSEE for activities under the sublicense.
9.06 Royalties due under Article 6 shall be paid in U.S. dollars. For
conversion of foreign currency to U.S. dollars, the conversion rate
shall be the New York foreign exchange rate quoted in THE WALL
STREET JOURNAL on the day that the payment is due. All checks and
bank drafts shall be drawn on Uriited States banks and shall be
payable, as appropriate, for FDA or NH4 licenses to the National
Institutes of Health, P.O. Box 360120, Pittsburgh, Pennsylvania
15251-6120 or for CDC licenses to the Centers for Disease Control
and Prevention, CDC Financial Management Office, 255 East Paces
Ferry Road, NE (MS-EI2), Atlanta, Georgia 30305. Any loss of
exchange, value, taxes, or other expenses incurred in the transfer
or conversion to U.S. dollars shall be paid entirely by LICENSEE.
The royalty report required by Paragraph 9.04 of this AGREEMENT
shall accompany each such payment and a copy of such report shall
also be mailed to PHS at its address for notices indicated on the
Signature Page of this AGREEMENT.
9.07 LICENSEE shall be solely responsible for determining if any tax on
royalty income is owed outside the United States and shall pay any
such tax and be responsible for all filings with appropriate
agencies of foreign governments.
9.08 Late charges will be assessed by PHS as additional royalties on any
overdue payments at a rate of one percent (1%) per month compounded
monthly. The payment of such late charges shall not prevent PHS
from exercising any other rights it may have as a consequence of
the lateness of any payment.
9.09 All plans and reports required by this Article 9 and marked
"confidential" by LICENSEE shall, to the extent permitted by law,
be treated by PHS as commercial and financial information obtained
from a person and as privileged and confidential and any proposed
disclosure of such
<PAGE>
records by the PHS under the Freedom of Information Act, 5 U.S.C.
Section 552 shall be subject to the predisclosure notification
requirements of 45 CFR Section 5.65(d).
10. PERFORMANCE
10.01 LICENSEE shall use its reasonable best efforts to bring the License
Products and Licensed Processes to Practical Application.
"Reasonable best efforts" for the purposes of this provision shall
include adherence to the COMMERCIAL DEVELOPMENT PLAN at Appendix F
and performance of the BENCHMARKS at Appendix E, in each case as
amended or modified. The efforts of a sublicensee shall be
considered the efforts of LICENSEE.
10.02 Upon the FIRST COMMERCIAL Sale, until the expiration of this
Agreement, LICENSEE shall use its reasonable best efforts to make
LICENSED PRODUCTS and LICENSED PROCESSES reasonably accessible to
the United States public.
11. INFRINGEMENT AND PATENT ENFORCEMENT
11.01 PHS and LICENSEE agree to notify each other promptly of each
infringement or possible infringement of the LICENSED PATENT
RIGHTS, as well as any facts which may affect the validity, scope,
or enforceability of the Licensed PATENT RIGHTS of which either
Party becomes aware.
11.02 Pursuant to this AGREEMENT and the provisions of Chapter 29 of
title 35, United States Code, Licensee may a) bring suit in its own
name, at its own expense, and on its own behalf for infringement of
presumably valid claims in the LICENSED PATENT RIGHTS; b) in any
such suit enjoin infringement and collect for its use, damages,
profits, and awards of whatever nature recoverable for such
infringement; and c) settle any claim or suit for infringement of
the LICENSED PATENT RIGHTS provided, however, that PHS and
appropriate GOVERNMENT authorities shall have the first right to
take such actions. If LICENSEE desires to initiate a suit for
patent infringement, LICENSEE shall notify PHS in writing. If PHS
does not notify LICENSEE of its intent to pursue legal action
within ninety (90) days, or such shorter period as may be required
to permit filing of the suit within any applicable limitations
period, LICENSEE will be free to initiate suit. PHS shall have a
continuing right to intervene in such suit. LICENSEE shall take no
action to compel the GOVERNMENT either to initiate or to join in
any such suit for patent infringement. LICENSEE may request the
GOVERNMENT to initiate or join in any such suit if necessary to
avoid dismissal of the suit. Should the GOVERNMENT be made a party
to any such suit, LICENSEE shall reimburse the GOVERNMENT for any
costs, expenses, or fees which the GOVERNMENT incurs as a result of
such motion or other action, including any and all costs incurred
by the GOVERNMENT in opposing any such motion or other action;
provided, however, that LICENSEE shall be reimbursed for such
expenses out of any final recovery awarded to the GOVERNMENT. In
all cases, LICENSEE agrees to keep PHS reasonably apprised of the
status and progress of any litigation. Before LICENSEE commences
an infringement action, LICENSEE shall notify PHS and give careful
consideration to the views of PHS and to any potential effects of
the litigation on the public health in deciding whether to bring
suit.
11.03 In the event that a declaratory judgment action alleging invalidity
or non-infringement of any of the LICENSED PATENT RIGHTS shall be
brought against LICENSEE or raised by way of counterclaim or
affirmative defense in an infringement suit brought by LICENSEE
under Paragraph 11.02, pursuant to this AGREEMENT and the
provisions of Chapter 29 of Title 35, United States Code or other
statutes, LICENSEE may a) defend the suit in its own name, at its
own expense, and on its own behalf for presumably valid claims in
the LICENSED PATENT RIGHTS; b) in any such suit, ultimately to
enjoin infringement and to collect for its use, damages, profits,
and awards of whatever nature recoverable for such infringement;
and c) settle any claim or suit for declaratory judgment involving
the LICENSED PATENT Rights,
<PAGE>
provided, however, that PHS and appropriate Government
authorities shall have the first right to take such actions and
shall have a continuing right to intervene in such suit. If PHS
does not notify LICENSEE of its intent to respond to the legal
action within a reasonable time, LICENSEE will be free to do so.
LICENSEE shall take no action to compel the GOVERNMENT either to
initiate or to join in any such declaratory judgment action.
LICENSEE may request the GOVERNMENT to initiate or to join any
such suit if necessary to avoid dismissal of the suit. Should
the GOVERNMENT be made a party to any such suit by motion or any
other action of LICENSEE, LICENSEE shall reimburse the GOVERNMENT
for any costs, expenses, or fees which the GOVERNMENT incurs as a
result of such motion or other action; provided, however, that
LICENSEE shall be reimbursed for such expenditures out of any
final recovery awarded to the GOVERNMENT. If LICENSEE elects not
to defend against such declaratory judgment action, PHS, at its
option, may do so at its own expense. In all cases, LICENSEE
agrees to keep PHS reasonably apprised of the status and progress
of any litigation. Before LICENSEE commences an infringement
action, LICENSEE shall notify PHS and give careful consideration
to the views of PHS and to any potential effects of the
litigation on the public health in deciding whether to bring suit.
11.04 In any action under Paragraphs 11.02 or 11.03, the expenses
including costs, fees, attorney fees, and disbursements. shall be
paid by LICENSEE. Up to fifty percent (50%) of such expenses,
representing expenses paid on behalf of the Government and not
reimbursed out of any recovery, may be credited against the
royalties payable to PHS under Paragraph 6.03 under the LICENSED
PATENT RIGHTS in the country in which such a suit is filed. In the
event that fifty percent (50%) of such expenses exceed the amount
of royalties payable by LICENSEE in any calendar year, the expenses
in excess may be carried over as a credit on the same basis into
succeeding calendar years. A credit against litigation expenses,
however, may not reduce the royalties due in any calendar year to
less than the minimum annual royalty, if any is due. Any recovery
made by LICENSEE, through court judgment or settlement, first shall
be applied to reimburse PHS for royalties withheld as a credit
against litigation expenses and then to reimburse LICENSEE for its
litigation expense. Any remaining recoveries shall be shared
equally by LICENSEE and PHS.
11.05 PHS shall cooperate fully with LICENSEE in connection with any
action under Paragraphs 11.02 or 11.03. PHS agrees promptly to
provide access to all necessary documents and to render reasonable
assistance in response to a request by LICENSEE.
12 NEGATION OF WARRANTIES AND INDEMNIFICATION
12.01 PHS offers no warranties other than those specified in Article 1.
12.02 PHS does not wan-ant the validity of the LICENSED PATENT RIGHTS and
makes no representations whatsoever with regard to the scope of the
LICENSED PATENT RIGHTS, or that the LICENSED PATENT RIGHTS may be
exploited without infringing other patents or other intellectual
property rights of third parties.
12.03 PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABELITY'
OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER DEFINED
BY THE CLAIMS OF THE LICENSED PATENT RIGHTS.
12.04 PHS does not represent that it will commence legal actions against
third parties infringing the LICENSED PATENT RIGHTS.
12.05 LICENSEE shall indemnify and hold PHS, its employees, students,
fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses,
<PAGE>
including but not limited to death, personal injury, illness, or
property damage in connection with or arising out of a) the use
by or on behalf of LICENSEE, its sublicensees, directors,
employees, or third parties of any LICENSED PATENT RIGHTS, or b)
the design, manufacture, distribution, or use of any LICENSED
PRODUCTS, LICENSED PROCESSES or materials by LICENSEE, or other
products or processes developed in connection with or arising out
of the LICENSED PATENT RIGHTS. LICENSEE agrees to maintain a
liability insurance program consistent with sound business
practice or ensure that any sublicensee maintains an adequate
amount of such insurance to cover LICENSEE'S risk exposure.
13. TERM, TERMINATION, AND MODIFICATION OF RIGHTS
13.01 This AGREEMENT is effective on the EFFECTIVE DATE and shall extend
to the expiration of the last to expire of the LICENSED PATENT
RIGHTS unless sooner terminated as provided in this Article 13.
13.02 In the event that Licensee is in default in the performance of any
material obligations under this AGREEMENT, including but not
limited to the obligations listed in Article 13.05, and if the
default has not been remedied, within ninety (90) days after the
date of notice in writing of such default, PHS may terminate this
AGREEMENT by written notice.
13.03 In the event that LICENSEE becomes insolvent, files a petition in
bankruptcy, has such a petition filed against it, determines to
file a petition in bankruptcy, or receives notice of a third
party's intention to file an involuntary petition in bankruptcy,
LICENSEE shall immediately notify PHS in writing.
13.04 LICENSEE shall have a unilateral right to terminate this AGREEMENT
and/or any licenses in any country by giving PHS sixty (60) days
written notice to that effect.
13.05 PHS shall specifically have the right to terminate or modify, at
its option, this AGREEMENT, if PHS determines that the LICENSEE: 1)
is not executing the COMMERCIAL DEVELOPMENT PLAN submitted with its
request for a license, as amended or modified at the pertinent
time, and the LICENSEE cannot otherwise demonstrate to PHS'S
satisfaction that the LICENSEE has taken or can be expected to take
within a reasonable time, effective steps to achieve practical
application of the LICENSED PRODUCTS or LICENSED PROCESSES; 2) has
not achieved the Benchmarks, as amended or modified at the
pertinent time; 3) has willfully made a false statement of, or
willfully omitted, a material fact in the license application or in
any report required by the license agreement; 4) has committed a
material breach of a covenant or agreement contained in the
license; 5) is not keeping LICENSED PRODUCTS or LICENSED PROCESSES
reasonably available to the public after commercial use commences;
6) cannot reasonably satisfy unmet health and safety needs; or 7)
cannot reasonably justify a failure to comply with the domestic
production requirement of Paragraph 5.02 unless waived. In making
this determination, PHS will take into account the normal course of
such commercial development programs conducted with sound and
reasonable business practices and judgment and the annual reports
submitted by LICENSEE under Paragraph 9.02. Prior to invoking this
right, PHS shall give written notice to LICENSEE providing LICENSEE
specific notice of, and a ninety (90) day opportunity to respond to
and cure, or initiate a course of action to cure, PHS'S concerns as
to the previous items 1) to 7). If LICENSEE fails to alleviate
PHS'S concerns as to the previous items 1) to 7) or fails to
initiate corrective action TO PHS'S satisfaction, PHS may terminate
this AGREEMENT.
13.06 When the public health and safety so require, and after written
notice to LICENSEE providing LICENSEE a sixty (60) day opportunity
to respond, PHS shall have the right to require LICENSEE to grant
sublicenses to responsible applicants, on reasonable terms, in any
Licensed Fields of Use under the Licensed Patent Rights, unless
LICENSEE can reasonably demonstrate that the
<PAGE>
granting of the sublicense would not materially increase the
availability to the public of the subject matter of the LICENSED
PATENT RIGHTS. PHS will not require the granting of a sublicense
unless the responsible applicant has first negotiated in good
faith with LICENSEE.
13.07 PHS reserves the right according to 35 U.S.C. Section 209(f)(4) to
terminate or modify this AGREEMENT if it is determined that such
action is necessary to meet requirements for public use specified
by federal regulations issued after the date of the license and
such requirements are not reasonably satisfied by LICENSEE.
13.08 Within thirty (30) days of receipt of written notice of PHS'S
unilateral decision to modify or terminate this Agreement, LICENSEE
may, consistent with the provisions of 37 CFR 404.1 1, appeal the
decision by written submission to the designated PHS official. The
decision of the designated PHS official shall be the final agency
decision. LICENSEE may thereafter exercise any and all
administrative or judicial remedies that may be available.
13.09 Within ninety (90) days of termination of this AGREEMENT under this
Article 13 or expiration under Paragraph 3.02, a final report shall
be submitted by LICENSEE. Any royalty payments, including those
related to patent expense, due to PHS shall become immediately due
and payable upon termination or expiration. If terminated under
this Article 13, sublicensees may elect to convert their
sublicenses to direct licenses with PHS pursuant to Paragraph 4.03.
14. GENERAL PROVISIONS
14.01 Neither Party may waive or release any of its rights or interests
in this AGREEMENT except in writing. The failure of either party
to assert a right hereunder or to insist upon compliance with any
term or condition of this AGREEMENT shall not constitute a waiver
of that right by that party or excuse a similar subsequent failure
to perform any such term or condition by the other party.
14.02 This Agreement constitutes the entire agreement between the Parties
relating to the subject matter of the LICENSED PATENT RIGHTS, and
all prior negotiations, representations, agreements, and
understandings are merged into, extinguished by, and completely
expressed by this Agreement.
14.03 The provisions of this AGREEMENT are severable, and in the event
that any provision of this AGREEMENT shall be determined to be
invalid or unenforceable under any controlling body of law such
determination shall not in any way affect the validity or
enforceability of the remaining provisions of this AGREEMENT.
However, this AGREEMENT shall terminate immediately if any
controlling body of law declares the grant of exclusivity of
paragraph 3.01 to be invalid or unenforceable.
14.04 If either Party desires a modification to this AGREEMENT, the
Parties shall, upon reasonable notice of the proposed modification
by the Party desiring the change, confer in good faith to determine
the desirability of such modification. No modification will be
effective until a written amendment is signed by the signatories to
this AGREEMENT or their designees.
14.05 The construction, validity, performance, and effect of this
AGREEMENT shall be governed by Federal law as applied by the
Federal courts in the District of Columbia.
14.06 All notices required or permitted by this AGREEMENT shall be given
by prepaid, first class, registered or certified mail properly
addressed to the other Party at the address designated on the
following Signature Page, or to such other address as may be
designated in writing by such other Party, and shall be effective
as of the date of receipt of such notice.
<PAGE>
14.07 This AGREEMENT shall not be assigned by LICENSEE except a) with the
prior written consent of PHS, such consent not to be withheld
unreasonably; or b) as part of a sale or transfer of substantially
the entire business of LICENSEE relating to operations which
concern this Agreement. LICENSEE shall notify PHS within ten (10)
days of any assignment of this Agreement by LICENSEE.
14.08 LICENSEE agrees in its use of any PHS-supplied materials to comply
with all applicable statutes, regulations, and guidelines,
including Public Health Service and National Institutes of Health
regulations and guidelines. LICENSEE agrees not to use the
materials for research involving human subjects or clinical trials
in the United States without complying with 21 CFR Part 50 and 45
CFR Part 46. LICENSEE agrees not to use the materials for research
involving human subjects or clinical trials outside of the United
States without notifying PHS, in writing, of such research or
trials and complying with the applicable regulations of the
appropriate national control authorities. Written notification to
PHS of research involving human subjects or clinical trials outside
of the United States shall be given no later than sixty (60) days
prior to commencement of such research or trials.
14.09 Licensee acknowledges that it is subject to and agrees to abide by
the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling
the export of technical data, computer software, laboratory
prototypes, biological material, and other commodities. The
transfer of such items may require a license from the cognizant
Agency of the U.S. GOVERNMENT or written assurances by LICENSEE
that it shall not export such items to certain foreign countries
without prior approval of such agency. PHS neither represents that
a license is or is not required or that, if required, it shall be
issued.
14.10 LICENSEE agrees to mark the LICENSED PRODUCTS or their packaging
sold in the United States with all applicable U.S. patent numbers
and similarly to indicate "Patent Pending" status. All LICENSED
PRODUCTS manufactured in, shipped to, or sold in other countries
shall be marked in such a manner as to preserve PHS patent rights
in such countries.
14.11 By entering into this AGREEMENT, PHS does not directly or
indirectly endorse any product or service provided, or to be
provided, by LICENSEE whether directly or indirectly related to
this Agreement. LICENSEE shall not state or imply that this
AGREEMENT is an endorsement by the GOVERNMENT, PHS, any other
GOVERNMENT organizational unit, or any GOVERNMENT employee.
Additionally, LICENSEE shall not use the names of NIH, CDC, PHS, or
DHHS or the GOVERNMENT or their employees in any advertising,
promotional, or sales literature without the prior written consent
of PHS.
14.12 The Parties agree to attempt to settle amicably any controversy or
claim arising under this Agreement or a breach of this Agreement,
except for appeals of modifications or termination decisions
provided for in Article 13. LICENSEE agrees first to appeal any
such unsettled claims or controversies to the designated PHS
official, or designee, whose decision shall be considered the final
agency decision. Thereafter, LICENSEE may exercise any
administrative or judicial remedies that may be available.
14.13 Nothing relating to the grant of a license, nor the grant itself,
shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent
misuse, and the acquisition and use of rights pursuant to 37 CFR
Part 404 shall not be immunized from the operation of state or
Federal law by reason of the source of the grant.
14.14 Paragraphs 4.03, 8.01, 9.06-9.08, 12.01-12.05, 13.08, 13.09, and
14.12 of this AGREEMENT shall survive termination of this
AGREEMENT.
<PAGE>
PHS PATENT LICENSE AGREEMENT--EXCLUSIVE
SIGNATURE PAGE
For PHS:
/s/ Barbara M. McGarey 1/31/97
- ------------------------------------------- -------
Barbara M. McGarey, J.D. Date
Deputy Director, Office of Technology Transfer
Mailing Address for Notices:
Office of Technology Transfer
National Institutes of Health
6011 Executive Boulevard, Suite 325
Rockville, Maryland 20852
For LICENSEE (Upon, information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of LICENSEE made or referred to
in this document are truthful and accurate.):
by:
/s/ Timothy T. Soncrant 1/10/97
- ------------------------------- -------
Timothy T. Soncrant
- -------------------------------
Printed Name
President
- -------------------------------
Title
Mailing Address for Notices:
1300 Atwood Rd.
- -------------------------------
Silver Spring, MD 20906
- -------------------------------
- -------------------------------
<PAGE>
APPENDIX A--PATENT(S) OR PATENT APPLICATION(S)
UNITED STATES
U.S. Patent No. 5,171,750 (U.S. Patent Application Serial No.07/765,746),
issued December 15, 1992, entitled, "Substituted Phenserines as Specific
Inhibitors of Acetylcholinesterase," Inventors: Brossi et al (NIA and
NIDDK);
U.S. Patent No. 5,378,723 (U.S. Patent Application Serial No. 08/182,301),
issued January 3, 1995, entitled, "Carbamate Analogs of Thiaphysovenine and
Method for Inhibiting Cholinesterases," Inventors: Brossi et al (NIA and
NIDDK).
U.S. Patent No. 5,409,948 (U.S. Patent Application Serial No. 07/980,399),
issued April 25, 1995, entitled, "Method of Treating Cognitive Disorders with
Phenserine," Inventors: Greig et al (NIA and NIDDK);
U.S. Patent Application Serial No. 08/096,207, filed July 26, 1993, entitled,
"Phenylcarbamates of (-)-Eseroline, (-)-N I -Noreseroline and (-)-N I
- -Benzylnoreseroline: Selective Inhibitors of Acetyl and/or
Butyrylcholinesterase," Inventors: Brossi et al (NIA and NIDDK);
FOREIGN
PCT Patent Applications
PCT/US92/07085 filed on August 26. 1992
PCT/US92/08228 filed on September 28, 1992
PCT/US93/11423 filed on November 23, 1993
National Patent Applications
Australia: 25042/92 (corresponds to PCT/US92/07085)
27544/92 (corresponds to PCT/US92/08228)
57290/94 (corresponds to PCT/US93/11423)
Canada: 2,119,782 (corresponds to PCT/US92/07085)
2,119,783 (corresponds to PCT/US92/08228)
2,149,924 (corresponds to PCT/US93/11423)
Europe: 92919058.5 (corresponds to PCT/US92/07085)
92921255.3 (corresponds to PCT/US92/08228)
94903295.7 (corresponds to PCT/US93/11423)
Japan: 506405/93 (corresponds to PCT/US92/07085)
6-513358 (corresponds to PCT/US93/11423)
<PAGE>
APPENDIX B--LICENSED FIELDS OF USE AND TERRITORY
Licensed Fields of Use: All fields of use encompassed by the patents in the
LICENSED PATENT RIGHTS.
Licensed Territory: Worldwide
<PAGE>
APPENDIX C-ROYALTIES
Licensee agrees to pay to PHS a noncreditable, nonrefundable license issue
royalty in the amount of Five Thousand Dollars ($5,000.00), which is due
thirty-six (36) months from the EFFECTIVE DATE of this AGREEMENT and payable
no later than thirty-six (36) months from the EFFECTIVE DATE of this
AGREEMENT. If LICENSEE terminates this AGREEMENT prior to thirty-six (36)
months from the EFFECTIVE DATE of this Agreement, Licensee shall pay a
royalty of Three Thousand Dollars ($3,000.00), which shall be due and payable
immediately upon termination, unless LICENSEE has previously paid the
nonrefundable license issue royalty.
LICENSEE agrees to pay to PHS a nonrefundable minimum annual royalty in the
amount of Ten Thousand Dollars ($10,000.00) until the First Commercial Sale of a
product occurs, at which time the minimum annual royalty shall increase to
Twenty-Five Thousand Dollars ($25,000.00). The first minimum annual royalty
payment shall be due and payable thirty-six (36) months from the EFFECTIVE DATE
of this AGREEMENT and may be prorated according to the fraction of the calendar
year remaining between the EFFECTIVE DATE of this AGREEMENT and the next
subsequent January 1. Subsequent minimum annual royalty payments shall be due
and payable as set forth in Paragraph 6.02. If the FIRST COMMERCIAL SALE occurs
during any calendar year following the date thirty-six (36) months from the
EFFECTIVE DATE, the minimum annual royalty amount shall also be prorated
according to the portion of the calendar year prior to and following the FIRST
COMMERCIAL SALE.
LICENSEE agrees to pav PHS earned royalties on NET SALES as follows:
Three percent (31/o) of NET SALES by LICENSEE on all LICENSED PRODUCTS
manufactured and sold in the LICENSED TERRITORY.
Licensee agrees to pay PHS benchmark royalties as follows:
One Hundred Thousand Dollars ($100,000.00) within thirty (30) days upon
LICENSEE'S or its sublicensee's submission to the U.S. Food and Drug
Administration (FDA) of the first New Drug Application (NDA) to the LICENSED
PRODUCTS in the LICENSED FIELDS OF USE, or upon LICENSEE'S or its subhcensee's
submission of the corresponding filing in a foreign equivalent of the FDA,
whichever occurs first.
Three Hundred Thousand Dollars ($300,000.00) within thirty (30) days after the
first FDA approval of any NDA submitted to the FDA by LICENSEE or its
sublicensee for the LICENSED PRODUCTS in the LICENSED FIELDS OF USE; however, if
the NDA approval is obtained within seventy-two (72) months of the EFFECTIVE
DATE, the amount of tins payment shall be reduced to Two Hundred Thousand
Dollars ($200,000.00).
Two Hundred Thousand Dollars ($200,000.00) shall be paid within thirty (30) days
after the first approval by a foreign counterpart of the FDA of that country's
equivalent of the NDA submitted by LICENSEE or its sublicensee, for the LICENSED
PRODUCTS in the LICENSED FIELDS OF USE; however, if the approval is obtained
within seventy-two (72) months of the EFFECTIVE DATE, the amount of this payment
shall be reduced to One Hundred Fifty Thousand Dollars ($150,000.00).
LICENSEE agrees to pay PHS sublicensing royalties as follows:
LICENSEE agrees to pay PHS twenty percent (20%) of any cash consideration
received by Licensee from each sublicensee, including LICENSEE'S sublicensee
royalty revenue and consideration received in granting a sublicense. For
purposes of this royalty requirement, cash consideration shall not include any
payment made by any sublicensee on behalf of LICENSEE for the express purpose of
satisfying LICENSEE'S royalty or other financial obligations to PHS under the
terms of this AGREEMENT, except for the earned royalty requirement for sales
made by LICENSEE, and also shall not include the first Ten Thousand Dollars
($10,000.00) of invoiced legal expenses incurred by Licensee in executing the
first sublicense, copies of said invoices to be provided by licensee to PHS.
The amount of invoiced legal expenses exempted from the sublicensing royalty
payment shall be increased to Twenty Thousand Dollars ($20,000.00) if the
Licensee pays the nonrefundable license issue royalty of Five
<PAGE>
Thousand Dollars ($5,000.00) within ninety (90) days of the EFFECTIVE DATE.
In any calendar year, sublicensing royalties will not exceed three percent
(3%) of NET SALES, should sales of a LICENSED PRODUCT occur during that year.
<PAGE>
APPENDIX D--MODIFICATIONS
Modifications to the Articles and Paragraphs of this AGREEMENT, as agreed to by
PHS and LICENSEE, have been incorporated into the text of this AGREEMENT.
<PAGE>
APPENDIX E--BENCHMARKS AND PERFORMANCE
LICENSEE agrees to the following BENCHMARKS for its performance under this
AGREEMENT AND, within ten (10) days of achieving a BENCHMARK, shall notify PHS
that the BENCHMARK has been achieved.
1. Initiate Phase I clinical trials for a LICENSED PRODUCT utilizing a
research organization specializing in clinical trials within fifteen (15)
months of the EFFECTIVE DATE.
2. Initiate Phase II clinical trials for a LICENSED PRODUCT within twenty (20)
months of the EFFECTIVE DATE.
3. Obtain a corporate partner for development and marketing of a LICENSED
PRODUCT within thirty (30) months of the EFFECTIVE DATE.
4. Initiate Phase IIb clinical trials for a LICENSED Product, within
thirty-six (36) months of the EFFECTIVE DATE.
5. Initiate Phase III clinical trials for a LICENSED PRODUCT within
forty-eight (48) months of the EFFECTIVE DATE.
6. File a New Drug Application with the FDA within seventy-two (72) months of
the EFFECTIVE DATE.
7. A LICENSED PRODUCT approved by the FDA within eighty-four (84) months of
the EFFECTIVE DATE.
<PAGE>
APPENDIX F--COMMERCIAL DEVELOPMENT PLAN
PUBLIC HEALTH SERVICE
RESEARCH, DEVELOPMENT AND MARKETING PLAN
CURE, on its own or though its sublicensees, intends to market products
developed from the licensed inventions in the U.S. and overseas in conjunction
with large, established pharmaceutical companies, or alternatively to sell the
technology to such a company. The firm fully expects that products marketed in
the U.S. will be manufactured in the United States.
R&D PLAN
The inventions for which license is sought are in a very early stage of
development, and require substantial additional research and development efforts
to yield marketable products. Several potential applications to the technology
exist. Applications to Alzheimer's disease, myasthenia gravis, glaucoma, and
other memory disorders may eventually be pursued, depending upon the outcome of
early research efforts. Described here are specific plans for research and
development of the technology toward a therapeutic for Alzheimer's disease,
which plans represent a good faith estimate of the appropriate means of
achieving such research and development based upon current knowledge and
research methodologies:
DEVELOPMENT TIMELINE
Development of an oral therapeutic will be initiated immediately upon receipt of
an exclusive license for the technology. Under the direction of Dr. Soncrant,
CURE will interact with experienced facilities to complete the following within
the first six months:
- - Synthesis of compounds (GNT) in sufficient quantities for subsequent
preclinical studies.
- - Formulation studies to determine optimal formulation for stability and
activity of compounds to be evaluated.
- - In vitro screening of compounds by an experienced GLP contractor to
characterize their likely pharmacological profiles.
- - Preclinical efficacy of a variety of compounds will be assessed in animal
models of memory impairment by an experienced contractor and/or by
collaborators, already identified, who have expertise in this area.
Based upon the results of activities of the first six months, a lead
compound/formulation will then be chosen for further evaluation. A second
series of preclinical activities will be conducted over the next six months,
focused upon the lead compound:
- - In vivo toxicology by a GLP contractor involving three-month daily oral
administrations in two species (e.g., rat and dog).
- - GW synthesis of sufficient quantity to initiate clinical trials.
- - Tablet formulation will be carried out by a contractor under GW
conditions. Tablet stability and accelerated stability studies will
begin.
Upon completion of the above studies, all necessary data to support an IND
application will have been obtained. An IND application will be submitted, and
approval is anticipated within two months.
Standard drug development strategies will be employed for the clinical
evaluation of efficacy and safety of the drug in man:
- - Phase I clinical trials. Toxicology and early efficacy. These include
dose ranging, toxicology and dosing frequency in combination with
pharmakinetics, and are generally performed on relatively few subjects
studied under highly controlled conditions.
<PAGE>
- - Phase II clinical trials. Demonstration of short term efficacy,
toxicology in longer-term drug administration, refinement of dosing,
improved assessment of efficacy. These will be performed in patients
with Alzheimer's disease, using some blinded components. Note: Phase II
trials are often divided into IIa and IIb. We anticipate that sufficient
information will be obtained in IIa trials to obtain a corporate partner
if the technology performs well. This process is estimated to take six
months.
- - Phase III. These trials are intended to demonstrate large-scale efficacy
in patients who are administered the drug in blinded fashion over a
prolonged period. Long-term toxicity is also measured, and concurrently
long range teratogenicity studies are completed. Current FDA protocol
for Alzheimer therapeutic calls for two multi-center trials, at least one
of six months' duration, with nine months preferred. Analysis of data
from such studies often requires several months time.
It is anticipated that Phase IIb and III trials will be carried out by a larger
pharmaceutical company in conjunction with CURE, L.L.C.
DEVELOPMENT FOR OTHER INDICATIONS
CURE intends to develop the licensed technology for use in several other
indications. These include memory impairment, cognition impairment, myasthenia
gravis, glaucoma, and memory improvement.
CURE will, through collaboration, embark on preclinical studies of the utility
of compounds derived from the licensed technology in memory improvement in
aging. These studies will begin during the first year of the Agreement.
CURE will prudently pursue development into the other areas listed above, based
on its experience with its Alzheimer program and outcomes of preclinical and
clinical toxicity studies. As all of these indications will require chronic
treatment with products of the licensed technology, it will be important to
confirm that these compounds are relatively nontoxic in animals and are well
tolerated in humans before proceeding with additional development. It is
expected that development for the additional indications will begin during the
second year of the Agreement.
<PAGE>
FINANCIAL CONSULTING AGREEMENT
THIS AGREEMENT IS MADE AS OF THIS 10TH DAY OF NOVEMBER, 1998, BETWEEN
INTERTREND MANAGEMENT, LTD., (HEREINAFTER REFERRED TO AS "IML") WITH OFFICES AT
FREYBERGSTRAS. 6, 833346 BERGEN CHIEMGAU, GERMANY AND AXONYX INC., (HEREINAFTER
REFERRED TO AS "AXONYX") WITH OFFICES AT 358 EAST 69TH STREET, NEW YORK, NEW
YORK 10021.
WHEREAS, IML IS A FINANCIAL CONSULTING COMPANY THAT SPECIALIZES IN
PROVIDING A VARIETY OF PROFESSIONAL SERVICES TO PUBLIC AND PRIVATE COMPANIES.
THESE SERVICES INCLUDE, BUT ARE NOT LIMITED TO: 1) DEVELOPMENT OF CAPITAL
FORMATION PLANS; 2) PROCUREMENT OF PRIVATE INVESTMENT CAPITAL; 3) GENERAL
INVESTMENT BANKING, 4) ARRANGING MERGERS AND ACQUISITIONS; 5) IDENTIFYING AND
NEGOTIATING UNDERWRITING AGREEMENTS FOR PUBLIC AND PRIVATE COMPANIES; 6)
CREATION OF BUSINESS DEVELOPMENT STRATEGIES; 7) BUSINESS AND SPECIAL PROJECT
ADMINISTRATION; 8) DEVELOPMENT OF INTEGRATED FINANCIAL PUBLIC RELATIONS PROGRAMS
FOR PUBLICLY TRADED COMPANIES; 9) FORMULATION OF INVESTOR RELATIONS PROGRAMS;
10) RETAINING OTHER OUTSIDE CONSULTANTS FOR SPECIALIZED PROJECTS RELATED TO
DEVELOPMENT OF INVESTOR COMMUNICATIONS AND REPORTS; AND 11) DESIGNING AND
IMPLEMENTING MULTI-PHASED MEDIA PROGRAMS TO INTRODUCE NEWLY LISTED ,PUBLIC
COMPANIES TO THE BROKERAGE COMMUNITY IN THE U.S. AND TO FOREIGN INSTITUTIONAL
INVESTOR GROUPS IN EUROPE.
WHEREAS, AXONYX IS A PRIVATELY HELD CORPORATION AND IS DESIROUS OF
RETAINING IML TO PERFORM CERTAIN SERVICES AS OUTLINED IN SECTION 2.3 OF THIS
AGREEMENT; AND
WHEREAS, IT IS THE DESIRE OF AXONYX TO DEVELOP A TOTAL FINANCIAL AND
OPERATING PLAN FOR THE EXPRESS PURPOSE OF ASSISTING AXONYX TO MAKE THE
TRANSITION FROM A PRIVATELY OWNED CORPORATION TO A PUBLICLY TRADED CORPORATION.
THE PARTIES HEREBY AGREE THAT THIS CONTRACT MAY INCLUDE SERVICES TO BE RENDERED
BY IML ON BEHALF OF AXONYX AND/OR A COMPANY THAT RESULTS FROM A CONSOLIDATION OF
AXONYX AND A PUBLICLY TRADED COMPANY; AND
WHEREAS, AXONYX IS THE OWNER OF CERTAIN RIGHTS AND HAS EXCLUSIVE LICENSES
PERTAINING TO SEVERAL PHARMACEUTICAL COMPOUNDS (HEREINAFTER REFERRED TO AS THE
"PRODUCTS"), IT IS THE INTENT OF AXONYX, ON A WORLDWIDE BASIS TO EITHER
MANUFACTURE, MARKET AND SELL THESE PROPRIETARY PATENTED PRODUCTS TO BE USED IN
THE MEDICAL AND HEALTHCARE INDUSTRY OR TO DEVELOP STRATEGIC ALLIANCES WITH
LARGER PHARMACEUTICAL COMPANIES. THESE STRATEGIC ALLIANCES WILL BE IN THE FORM
OF JOINT VENTURES OR SUBLICENSE AGREEMENTS TO TEST, OBTAIN REGULATORY APPROVAL
AND COMMERCIALIZE THE PHARMACEUTICAL COMPOUNDS CONTROLLED BY AXONYX; AND
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN
AND OTHER GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED BETWEEN THE PARTIES AS
FOLLOWS:
<PAGE>
ARTICLE 1
1.1 INDEPENDENT CONTRACTOR STATUS
THE PARTIES TO THIS CONTRACT INTEND THAT THE RELATION BETWEEN THEM
CREATED BY THIS FINANCIAL CONSULTING AGREEMENT WILL RESULT IN IML BEING
CONSIDERED AN INDEPENDENT CONTRACTOR. NO AGENT, EMPLOYEE OR SERVANT OF THE
INDEPENDENT CONTRACTOR SHALL BE, OR SHALL BE DEEMED TO BE AN EMPLOYEE, AGENT: OR
SERVANT OF AXONYX. AXONYX IS INTERESTED ONLY IN THE RESULTS OBTAINED UNDER THIS
CONTRACT; THE MANNER AND MEANS OF ACCOMPLISHING THE AGREED UPON OBJECTIVE IS
UNDER THE SOLE CONTROL OF THE INDEPENDENT CONTRACTOR, SUBJECT TO EXECUTION OF AN
AGREEMENT WITH A PUBLICLY TRADED COMPANY THAT CONTAINS TERMS AND CONDITIONS
ACCEPTABLE TO AXONYX. NONE OF THE BENEFITS PROVIDED BY AXONYX TO ITS EMPLOYEES,
OFFICERS AND/OR DIRECTORS, WHICH MAY INCLUDE, BUT ARE NOT LIMITED TO,
COMPENSATION, HEALTH INSURANCE, UNEMPLOYMENT INSURANCE OR VARIOUS STOCK OPTION
PLANS WILL BE AVAILABLE TO THE CONTRACTOR, OR ITS EMPLOYEES. IML AS AN
INDEPENDENT CONTRACTOR WILL BE SOLELY AND ENTIRELY RESPONSIBLE FOR ITS ACTS AND
FOR THE ACTS OF ITS AGENTS, EMPLOYEES, AFFILIATES AND SUBCONTRACTORS DURING THE
PERFORMANCE OF THIS CONTRACT. EACH PARTY AGREES TO INDEMNIFY THE OTHER AND HOLD
THE OTHER HARMLESS, FOR ANY AND ALL ACTIONS, REGARDLESS OF THE NATURE,
DESCRIPTION OR TYPE.
ARTICLE 2
2.1 STATEMENT OF CONTRACT INTENT
IML IS PRIMARILY ENGAGED AS A FINANCIAL CONSULTING AND CORPORATE
DEVELOPMENT COMPANY ON AN INDEPENDENT CONTRACTOR BASIS AND DERIVES ITS REVENUES
FROM CONSULTING FEES CHARGED CLIENT COMPANIES AND FROM CAPITAL APPRECIATION OF
SECURITIES OBTAINED AS PART OF THE CONSULTING FEES FROM THE CLIENT COMPANIES
THAT ENGAGE IML TO GUIDE THEM IN THEIR CORPORATE DEVELOPMENT, FINANCING
ACTIVITIES, VARIOUS FINANCIAL SERVICES AND WITH THE SPECIFIC INTENT TO UNDERTAKE
ALL REQUIREMENTS TO FACILITATE AXONYX TO BECOME A PUBLICLY TRADED COMPANY. THE
OBJECTIVES WILL BE OUTLINED IN DETAIL IN OTHER ARTICLES OF THIS AGREEMENT.
2.2 DOCUMENTATION AVAILABLE TO IML AND OBJECTIVES TO BE ACCOMPLISHED
AXONYX WILL MAKE AVAILABLE OR PROVIDE TO THE MANAGEMENT AND CONSULTANTS
OF IML, SUBJECT TO CONFIDENTIALITY AGREEMENTS TO BE ENTERED INTO BETWEEN AXONYX
AND IML AND ANY SUCH CONSULTANTS, THE FOLLOWING INFORMATION AND AGREES TO TAKE
WHATEVER REASONABLE STEPS REQUIRED TO ACCOMPLISH THE FOLLOWING:
A. PREPARATION OF AUDITED FINANCIAL STATEMENTS OF AXONYX FROM
INCEPTION TO DECEMBER 31, 1997 AND UNAUDITED STATEMENTS ENDING SEPTEMBER 30,
1998. TO BE INCLUDED, IF REQUIRED, A CASH FLOW ANALYSIS AND A PROFIT AND LOSS
PROJECTION FOR A PERIOD OF THREE YEARS. THESE AUDITED AND UNAUDITED FINANCIAL
STATEMENTS WILL COMPLY WITH GENERALLY ACCEPTABLE ACCOUNTING PROCEDURES COMMONLY
REFERRED TO AS THE GAAP METHOD OF ACCOUNTING REQUIRED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
<PAGE>
B. THE PREPARATION OF A COMPREHENSIVE BUSINESS, MARKETING AND
FINANCIAL PLAN PREPARED BY THE MANAGEMENT OR CONSULTANTS OF AXONYX.
C. AXONYX AGREES TO INFORM IML OF ALL MATERIAL BUSINESS TRANSACTIONS
AND DEVELOPMENTS, AND FURTHER AGREES TO MAKE AVAILABLE ALL INFORMATION AND
DOCUMENTATION REQUESTED BY IML THAT IS IN AXONYX'S CONTROL AND IS NOT SUBJECT TO
A CONFIDENTIALITY AGREEMENT WITH A THIRD PARTY.
D. AXONYX AGREES TO FULLY AND ACCURATELY DISCLOSE ALL INFORMATION THAT
IS NOT SUBJECT TO A CONFIDENTIALITY AGREEMENT WITH A THIRD PARTY TO IML RELATING
TO AXONYX'S BACKGROUND, HISTORY, PRINCIPALS, INVESTORS, PRODUCTS, DEBTS AND ANY
OTHER INFORMATION WHICH IML REASONABLY DEEMS NECESSARY TO PERFORM ITS
OBLIGATIONS CONCERNING THIS CONTRACT.
E. AXONYX REPRESENTS TO IML THAT A MAJORITY OF THE BOARD OF DIRECTORS
OF AXONYX HAVE APPROVED THIS CONTRACT WITH IML AND HAVE EXECUTED A CORPORATE
RESOLUTION REFLECTING THEIR APPROVAL AND THIS RESOLUTION HAS BEEN MADE A PART OF
THE CORPORATE RECORDS AND FILED IN THE MINUTE BOOK OF THE CORPORATION.
2.3 DUTIES TO BE PERFORMED BY IML ON BEHALF OF AXONYX
IML HEREBY AGREES TO ACCOMPLISH THE ITEMS LISTED BELOW ON BEHALF OF
AXONYX IN EXCHANGE FOR THE COMPENSATION DESCRIBED IN ARTICLE 4 OF THIS CONTRACT.
A. PREPARATION OF THE CORPORATE STOCK STRUCTURE AND ACTING AS THE
CONSULTANT TO ASSIST IN THE DETERMINATION OF THE ISSUING PRICE FOR ANY FUTURE
PRIVATE OFFERINGS, SECONDARY OFFERINGS OR AN INITIAL PUBLIC OFFERING ("IPO").
B. EVALUATE SEVERAL U.S. PUBLIC CORPORATIONS TO SEEK A VIABLE
CANDIDATE AS A PUBLICLY TRADED HOLDING COMPANY (HEREINAFTER THE "PUBLIC
COMPANY") TO ACQUIRE 100% OF THE SHARES OF AXONYX AS A WHOLLY OWNED SUBSIDIARY
CORPORATION OR ACQUIRE ALL OF THE SHARES AS PART OF A STATUTORY MERGER.
IDENTIFY AND EVALUATE POTENTIAL UNDERWRITERS FOR AN IPO AND ASSIST IN
NEGOTIATION OF AN UNDERWRITING AGREEMENT.
C. ASSIST IN LOCATING A SECURITIES ATTORNEY TO COMPLETE THE PROPOSED
TRANSACTION, SUBJECT TO REVIEW AND APPROVED BY THE BOARD OF DIRECTORS OF AXONYX.
D. PREPARE FOR THE CALL OF A SPECIAL STOCKHOLDERS MEETING OF THE
PUBLIC COMPANY.
E. INCREASE THE CAPITALIZATION OF THE PUBLIC COMPANY IF NECESSARY OR
RESTRUCTURE THE PUBLIC COMPANY TO MAKE IT CONDUCIVE FOR A MERGER WITH AXONYX.
F. PREPARE DOCUMENTS TO CHANGE THE NAME OF THE POST MERGER OR POST
ACQUISITION CONSOLIDATED COMPANY (HEREINAFTER THE "CONSOLIDATED COMPANY") TO
AXONYX INC.
<PAGE>
G. ASSIST IN SECURING CERTIFIED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE PUBLIC COMPANY AND AXONYX.
H. PREPARE THE NECESSARY AMENDMENTS AND ASSIST THE FILING IN THE STATE
OF DOMICILE FOR THE CONSOLIDATED COMPANY.
I. ASSIST THE ATTORNEYS FOR THE CONSOLIDATED COMPANY IN PREPARING AND
FILING ALL NECESSARY CURRENT STATE AND FEDERAL SECURITIES FILINGS, INCLUDING THE
PREPARATION OF A FORM 10 REGISTRATION STATEMENT IN THE EVENT THE CANDIDATE
COMPANY IS NON-REPORTING AND 10Q AND 10K) AFTER THE CONSOLIDATION OR ACQUISITION
HAS TAKEN PLACE, IF THE PUBLIC COMPANY IS A REPORTING COMPANY.
J. SUPERVISE THE PREPARATION OF THE ACQUISITION AGREEMENT, SUPPORT
DOCUMENTS, EXHIBITS AND ALL ANCILLARY LEGAL DOCUMENTS BETWEEN AXONYX AND THE
PUBLIC COMPANY.
K. SUPERVISE THE PREPARATION AND MAILING OF THE LETTER TO AXONYX
SHAREHOLDERS, NOTICE OF SPECIAL MEETING AND THE PROXY STATEMENT, IF REQUIRED.
L. ASSIST IN ORDERING NEW UP-DATED STOCK CERTIFICATES FOR THE
CONSOLIDATED COMPANY.
M. ASSIST IN SELECTING A STOCK REGISTRAR AND TRANSFER AGENT FOR THE
CONSOLIDATED COMPANY.
N. ASSIST IN FILING FOR A NEW CUSIP NUMBER FOR THE CONSOLIDATED
COMPANY.
O. PREPARE FILING WITH MOODY'S FINANCIAL SERVICES OR STANDARD & POOR'S
FINANCIAL SERVICE.
P. ASSIST IN ESTABLISHMENT OF RESIDENT AGENT, STATE OF DOMICILE.
Q. PREPARE OR AMEND FOR FILING A 15c2-11 DISCLOSURE DOCUMENT WITH THE
NASD AND MARKET MAKERS.
R. PREPARE FOR FILING A DUE DILIGENCE PACKAGE WITH A MINIMUM OF AT
LEAST THREE (.3) MARKET MAKERS TO INITIATE TRADING OF THE SHARES OF THE
CONSOLIDATED COMPANY.
S. PREPARE A CERTIFICATE OF MERGER FOR THE CONSOLIDATED COMPANY AND
ASSIST IN FILING IN THE STATE OF DOMICILE, IF NECESSARY.
T. ASSIST IN THE ESTABLISHMENT OF THE INITIAL MARKET AND SHAREHOLDER
RELATIONSHIPS FOR THE CONSOLIDATED COMPANY.
<PAGE>
U. MAINTAIN INITIAL FINANCIAL AND PUBLIC RELATIONS ON BEHALF OF THE
CONSOLIDATED COMPANY EFFECTIVE THE DAY THAT THE CONSOLIDATED COMPANY BEGINS TO
TRADE PUBLICLY OR DESIGNATE A FIRM TO PERFORM THESE SERVICES IN THE U.S.
V. ACT AS GENERAL FINANCIAL ADVISOR WITH REGARD TO SUCH MATTERS AS A
LIAISON TO THE INVESTMENT AND BROKERAGE COMMUNITY, BUSINESS DEVELOPMENT,
CONSULTATION AND AS AN ADVISOR FOR ALL NEGOTIATIONS WITH POTENTIAL UNDERWRITING
FIRMS OR FIRMS SPECIALIZING IN RAISING PRIVATE EQUITY AND/OR VENTURE FUNDS.
W. AT AXONYX'S OPTION, CONTINUING FINANCIAL PUBLIC RELATIONS SERVICES
AND GENERAL FINANCIAL CONSULTING SUBSEQUENT TO AXONYX BECOMING A PUBLIC
CORPORATION OR COMPLETING AN INITIAL PUBLIC OFFERING.
X. Assist the corporate securities attorney in preparation of any
required registration statements to be filed with the SEC.
Y. TO ACT As AN INDEPENDENT FINANCIAL CONSULTANT THROUGH ITS
AGENTS, SERVANTS AND EMPLOYEES, TO PERFORM SUCH SERVICES FOR AXONYX THAT ARE
CONSISTENT WITH THE INTENT OF THIS AGREEMENT AND AS SUCH ARE GENERALLY CUSTOMARY
TO THE SERVICES PERFORMED BY A FINANCIAL CONSULTANT.
ARTICLE 3
3.1 TERM OF CONTRACT
AXONYX HEREBY CONTRACTS WITH IML COMMENCING THE 10TH DAY OF NOVEMBER,
1998, AND CONTINUING FOR A PERIOD OF ONE (1) YEAR OR UNTIL IML HAS PERFORMED THE
ABOVE MENTIONED SERVICES, WHICHEVER EVENT SHALL COME FIRST.
ARTICLE 4
4.1 COMPENSATION TO IML
IN CONSIDERATION OF THE FINANCIAL CONSULTING SERVICES ENUMERATED ABOVE,
TO BE PROVIDED TO AXONYX BY IML, AS SET FORTH IN ARTICLE 2, AXONYX AGREES TO
PROVIDE COMPENSATION TO IML AS OUTLINED BELOW.
A. IML, FOR SERVICES UNDER THIS AGREEMENT, SUBJECT TO AXONYX MERGING
WITH A PUBLIC COMPANY DURING THE TERM OF THIS AGREEMENT, OR CONSUMMATING AN IPO,
WILL BE GRANTED A TWO YEAR STOCK OPTION (THE "STOCK OPTION") TO PURCHASE FIFTEEN
THOUSAND (15,000) SHARES OF COMMON STOCK OF AXONYX (THE "OPTION SHARES"),
EXERCISABLE AT: $2.50 PER SHARE. THE DATE OF THE GRANT OF THE STOCK OPTION
SHALL BE CONCURRENT WITH AXONYX CONSOLIDATING WITH A PUBLIC COMPANY, THE
ACQUISITION OF AXONYX BY A PUBLIC COMPANY, OR AXONYX'S IPO WHICHEVER OCCURS
FIRST. IML MAY DISBURSE SOME OR ALL OF THE STOCK OPTION OR THE OPTION SHARES TO
OTHER THIRD PARTIES, PURSUANT TO COMPLIANCE WITH APPLICABLE SECURITIES
EXEMPTIONS. THESES SHARES WILL
<PAGE>
HAVE PIGGYBACK REGISTRATION RIGHTS, IN THE EVENT AXONYX FILES A SUBSEQUENT
REGISTRATION STATEMENT WITH THE SEC.
IT IS AGREED BY THE PARTIES THAT WHEN THE OPTION SHARES ARE AVAILABLE FOR
DELIVERY, THE CERTIFICATES WILL BE DELIVERED TO INTERTREND MANAGEMENT:, LTD.,
FREYBERGSTRAS 6, 833346 BERGEN CHIEMGAU, GERMANY OR SUCH OTHER ADDRESSES TO BE
PROVIDED IN THE FUTURE.
AT SUCH POINT IN TIME AS THE CONSOLIDATED COMPANY OR AXONYX AND THE BOARD
OF DIRECTORS OF CONSOLIDATED COMPANY OR AXONYX, AT ITS OPTION, AT SOME FUTURE
DATE, DECIDE TO PREPARE A REGISTRATION STATEMENT FOR FILING WITH THE SEC, IT
WILL NOTIFY IML OF ITS INTENT, BY REGISTERED MAI1, A MINIMUM OF FORTY FIVE (45)
DAYS IN ADVANCE OF THE ANTICIPATED FILING DATE OF THE REGISTRATION STATEMENT TO
DETERMINE IF IML WOULD LIKE TO INCLUDE A PORTION OR ALL OF ITS OPTION SHARES IN
THE REGISTRATION STATEMENT. IML MUST RESPOND IN WRITING, BY CERTIFIED MAIL,
WITHIN FIFTEEN (15) DAYS, WITH REGARD TO WHETHER IML DESIRES TO HAVE A PORTION
OR ALL OF THEIR OPTION SHARES INCLUDED IN THE PROPOSED REGISTRATION STATEMENT.
IN EFFECT, AXONYX IS GRANTING "PIGGY BACK REGISTRATION RIGHTS" TO IML, AT NO
EXPENSE TO IML. NOTHING IN THIS AGREEMENT SHOULD BE CONSTRUED TO SUGGEST THAT
AXONYX OR THE CONSOLIDATED COMPANY IS REQUIRED TO FILE A REGISTRATION STATEMENT.
B. AS FURTHER CONSIDERATION FOR CONSULTING SERVICES RENDERED TO AXONYX
BY IML, IML WILL RECEIVE A TOTAL DEPOSIT IN THE AMOUNT OF FIFTY THOUSAND
($50,000) DOLLARS AT THE TIME THIS AGREEMENT IS EXECUTED. IT IS UNDERSTOOD THAT
IN THE EVENT A MERGER OR IPO IS NOT CONSUMMATED DURING THE TERM OF THIS
AGREEMENT, IML WILL RETURN FORTY THOUSAND DOLLARS ($40,000) TO AXONYX.
C. FUTURE ADDITIONAL FINANCIAL CONSULTING AND FINANCIAL PUBLIC
RELATIONS WORK TO BE PROVIDED BY IML OR THEIR AGENTS WILL BE AT THE OPTION OF
AXONYX.
D. DIRECT EXPENSES RELATING TO AXONYX BEING ACQUIRED BY A PUBLIC
COMPANY WILL BE AT THE EXPENSE OF AXONYX. THE DIRECT EXPENSES WILL INCLUDE, BUT
ARE NOT LIMITED TO, ALL STATE AND FEDERAL SECURITIES FILINGS, LEGAL EXPENSES OF
THE PUBLIC COMPANY RELATED TO THE ACQUISITION OF OR MERGER WITH AXONYX (NOT TO
EXCEED $1000.00), ACCOUNTING AND AUDITING COSTS, VARIOUS FEES AND ADMINISTRATIVE
COSTS RELATED TO BEING A PUBLIC CORPORATION POST MERGER OR ACQUISITION AND THE
COST RELATED TO PROVIDING INFORMATION TO THE BROKERAGE COMMUNITY AND THE PUBLIC
SHAREHOLDERS OF THE ACQUIRING COMPANY. AT SUCH TIME AS A PROPOSED MERGER OR
ACQUISITION HAS BEEN COMPLETED, ALL POST MERGER COSTS OF THE TYPE AND KIND
DESCRIBED ABOVE WILL BE THE SOLE RESPONSIBILITY OF AXONYX.
E. IF IML OR ANY OF ITS AFFILIATES PARTICIPATE IN ANY CAPITAL
FORMATION, IT IS UNDERSTOOD THAT ANY EQUITY OR SHARES SOLD BY IML OR ITS
AFFILIATES WILL BE SOLD SUBJECT TO A SELLING COMMISSION TO BE NEGOTIATED. THE
PRICE OF ANY SHARES OR EQUITY SOLD BY IML IN AXONYX WILL BE APPROVED IN WRITING
BY AN AUTHORIZED OFFICER OF AXONYX. THE PRICE OF THE SHARES WILL BE ESTABLISHED
BY MUTUAL AGREEMENT BETWEEN THE REPRESENTATIVES AXONYX AND IML.
<PAGE>
F. EXPENSES DIRECTLY INCURRED IN REGARD TO PERFORMING THE DUTIES
OUTLINED AND RELATED TO ITEMS A THROUGH Y, ARTICLE 2 OF THIS AGREEMENT, WILL BE
THE SOLE RESPONSIBILITY OF IML, UNLESS APPROVED IN ADVANCE BY AXONYX.
G. IML RESERVES THE RIGHT TO ACQUIRE STOCK OPTIONS FROM SHAREHOLDERS
OF THE PUBLIC COMPANY AND/OR FROM SHAREHOLDERS OF AXONYX, PRIOR TO AN
ACQUISITION BY OR CONSOLIDATION WITH A PUBLIC COMPANY.
ARTICLE 5
5.1 AXONYX AND IML COOPERATION, IML USE OF AXONYX PERSONNEL
FOR THE SOLE PURPOSE OF ACCOMPLISHING A MERGER, ACQUISITION OR IPO ON
BEHALF OF AXONYX, AXONYX AGREES TO ACTIVELY ASSIST IML UTILIZING AXONYX
PERSONNEL AND CONSULTANTS, IF NECESSARY TO ACCOMPLISH THE PROPOSED MERGER OR
ACQUISITION OF AXONYX OR AN IPO. ANY AND ALL COSTS INCURRED BY AXONYX OR THE
CONSOLIDATED COMPANY NOT SPECIFICALLY IDENTIFIED OR PROVIDED FOR IN THIS
AGREEMENT, THAT ARE REQUIRED TO ACCOMPLISH THE OBJECTIVE OF AXONYX OF BECOMING A
PUBLICLY TRADED CORPORATION OR DOING AN IPO SHALL BE ASSUMED BY AXONYX. THIS
MAY INCLUDE OUCH TASKS AS WORD PROCESSING, TYPING, PRINTING, BINDING, ACCOUNTING
AND LEGAL FEES, TRAVEL AND COSTS INCIDENTAL TO AXONYX'S SHAREHOLDER
COMMUNICATIONS AND PROXY STATEMENT AND THE COST OF AN INDEPENDENT AUDIT.
ARTICLE 6
6.1 OWNERSHIP PERCENTAGE OF CONSOLIDATED COMPANY
IN THE EVENT A MERGER OR ACQUISITION IS ACCOMPLISHED BETWEEN AXONYX AND A
PUBLIC COMPANY, IT IS THE INTENT OF BOTH PARTIES THAT SHAREHOLDERS OF AXONYX
SHALL OWN NOT LESS THAN NINETY (90%) PERCENT OF THE CONSOLIDATED COMPANY.
ARTICLE 7
INVALIDATION OF AGREEMENT
IF ANY PORTION OF THIS AGREEMENT IS DETERMINED TO BE VOID AS AGAINST THE
LAW OR PUBLIC POLICY, SUCH PROVISION SHALL NOT RENDER THE ENTIRE AGREEMENT VOID,
BUT ONLY THE INVALID PORTION SHALL BE SO CONSTRUED, AND THOSE PROVISIONS OF THIS
AGREEMENT WHICH ARE VALID AND MAY BE CARRIED OUT WITHOUT DISTORTING THE INTENT
OF THE PARTIES, AS EVIDENCED BY THIS AGREEMENT, SHALL BE ENTERED INTO AND
CARRIED OUT.
7.2 INJUNCTIVE RELIEF
THE PARTIES AGREE THAT IN THE EVENT ANY PARTY TO THIS AGREEMENT SHALL
FAIL OR REFUSE TO PERFORM ANY OF THE PROVISIONS OF THIS AGREEMENT, THE OTHER
PARTY HERETO SHALL BE ENTITLED TO
<PAGE>
INJUNCTIVE RELIEF ENJOINING AND RESTRAINING THE VIOLATIONS OF ANY OF THE
PROVISIONS OF THIS AGREEMENT AND COMPELLING SPECIFIC PERFORMANCE OF THIS
AGREEMENT AS HEREIN SET FORTH.
7.3 WAIVERS
THE WAIVER OF EITHER PARTY OF A BREACH OR VIOLATION OF, OR FAILURE TO
COMPLY WITH, ANY TERM CONDITION OR PROVISION OF THIS AGREEMENT BY THE OTHER
PARTY SHALL NOT EFFECT THIS AGREEMENT AND SHALL NOT OPERATE OR BE CONSTRUED AS A
WAIVER OF ANY SUBSEQUENT BREACH, VIOLATION OR FAILURE, AND SHALL NOT EFFECT ANY
OF THE RIGHTS OR REMEDIES OF THE PARTIES HERETO. NO DEPARTURE FROM THIS
AGREEMENT WILL CONSTITUTE A WAIVER OR MODIFICATION OF ANY OF THE PROVISIONS OR
CONDITIONS, OR OF THE RIGHTS, OR REMEDIES OF EITHER OF THE PARTIES HERETO.
7.4 JURISDICTION OF AGREEMENT
THIS AGREEMENT IS MADE WITH REFERENCE TO THE LAWS OF THE STATE OF NEW
YORK.
7.5 SUCCESSORS IN INTEREST
IT IS EXPRESSLY UNDERSTOOD THAT THIS AGREEMENT SHALL BIND ANY SUCCESSORS,
ASSIGNS, SUBSIDIARIES OR EXTENSIONS TO THE PARTIES HERETO.
7.6 RELATIONSHIP OF THE PARTIES
IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT AXONYX AND IML ARE COMPLETELY
SEPARATE ENTITIES AND ARE NOT PARTNERS, JOINT VENTURES, NOR AGENTS FOR EACH
OTHER IN ANY SENSE WHATSOEVER AND NEITHER PARTY HAS THE POWER OR THE -RIGHT TO
OBLIGATE OR BIND THE OTHER. IT IS ALSO EXPRESSLY UNDERSTOOD THAT IML HAS NOT
REPRESENTED ITSELF AS A BROKER DEALER AS DEFINED BY THE SECURITIES LAWS OF THE
UNITED STATES.
7.7 NATURE OF THE AGREEMENT
THIS AGREEMENT IS COMPLETE AND CONSTITUTES THE ENTIRE AND ONLY CONTRACT
BETWEEN ALL PARTIES HERETO AND IT IS MUTUALLY AGREED AND UNDERSTOOD THAT NO
OTHER AGREEMENTS, STATEMENTS, INDUCEMENTS OR REPRESENTATIONS, WRITTEN OR VERBAL
HAVE BEEN MADE OR RELIED UPON BY EITHER PARTY. ANY MODIFICATIONS HERETO OR
AMENDMENTS HERETO SHALL BE BINDING WHEN PRESENTED IN WRITING AND SIGNED BY BOTH
PARTIES.
<PAGE>
7.8 EXECUTION IN COUNTERPART
THIS AGREEMENT MAY BE SIGNED IN COUNTERPART.
THIS AGREEMENT MADE AND ENTERED INTO AS OF DECEMBER 10, 1998.
INTERTREND MANAGEMENT LTD. AXONYX INC.
BY: /s/ HORST KONIG BY: /s/ MARVIN S. HAUSMAN, M.D.
------------------------ -----------------------------------
HORST KONIG, PRESIDENT MARVIN S. HAUSMAN, M.D. PRESIDENT & CEO
<PAGE>
ZIEGLER, ZIEGLER & ALTMAN LLP
COUNSELORS AT LAW
750 LEXINGTON AVENUE
NEW YORK NEW YORK 10022
(212) 319-7600
TELECOPIER (212) 319-7605
March 15, 1999
BY HAND
Mr. Michael Strage
Axonyx Inc.
750 Lexington Avenue
New York, New York 10022
Re: OFFICE SPACE AT 750 LEXINGTON AVENUE
Dear Michael:
This will confirm that Axonyx Inc. ("AI") has agreed to lease the office
identified as "V" on Exhibit A annexed hereto (the "Premises") located on the
14th floor at 750 Lexington Avenue, New York, New York, from Ziegler, Ziegler &
Altman LLP ("ZZ&A") on the following terms and conditions:
TERM: The term of this lease shall be one year commencing March 1, 1999
and ending February 28, 2000.
RENT: The monthly rent for the use of the Premises shall be $2,800 per
month which shall be payable in advance on the first day of each month during
the term of this lease.
RENEWAL OPTION: AI shall have the option to renew this lease for a
period of one year beginning March 1, 2000, provided that ZZ&A, continues to be
in possession of Suite 1400 at 750 Lexington Avenue. Such option must be
exercised by AI by giving written notice to ZZ&A in accordance with the notice
provisions of this lease by no later than December 31, 1999. Provided the
renewal option is exercised, the terms of this lease shall remain in full force
and effect during the term of such renewal period, except that the monthly
rental shall be $3,000 per month for the duration of the renewal period.
NEW PREMISES: AI expressly acknowledges that ZZA is considering the
possibility of moving to other offices prior to the end of the lease term. In
that event, ZZA shall in good faith seek to secure comparable space for AI
within ZZA's premises. ZZA shall, however, have no obligation to secure such
space for AI and its failure to do so will not give rise to any claim by Al
against ZZA. The lease for such new space shall be on terms and conditions to
be
<PAGE>
negotiated by the parties. Nothing herein shall be deemed to create an
obligation on ZZA to rent any such space to AI.
SECURITY: AI shall prior to March 16, 1999 deposit and maintain with ZZ&A
the sum of $5,600.00 as security for the faithful performance and observance of
the terms, provisions and conditions of this lease. Such monies shall be
deposited into ZZA's general firm account upon receipt and shall become the
property of ZZA at that time. The security deposit shall not earn interest and
will not be held in escrow. In the event Al defaults in respect to any of the
terms, provisions or conditions of this lease, including but not limited to, the
payment of rent, ZZ&A may use, apply, retain or draw upon the whole or any part
of the security so deposited to the extent required for the payment of rent or
other sums as to which AI is in default or for which ZZ&A may expend or may be
required to expend by reason of AI's default hereunder. In the event ZZ&A so
applies the security deposit, in whole or in part, as provided herein Al shall
on five (5) days written notice replenish the full amount withdrawn. In the
event Al fully and faithfully complies with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to AI on
the date fixed as the end of this lease and delivery of possession of the
Premises to ZZ&A.
ZZ&A SERVICES: During the term of this lease, AI shall be provided with the
following, without additional cost: (a) receptionist services during normal
business hours, (b) use of ZZA's telephone system for AI's dedicated lines, and
use of ZZ&A's photocopying equipment at a rate of $.15 per page. ZZ&A will
render monthly statements to AI for t of its photocopier equipment, which
statements shall be due and payable on receipt by AI.
ASSIGNMENT: AI shall not assign this lease or allow the same to be
transferred by operation of law or otherwise, and shall not sublet the Premises,
or any part thereof, without ZZ&A's express written consent.
CONDITION OF THE PREMISES: AI has examined and agrees to accept the
Premises in its "as is" condition and state of repair. ZZ&A shall not be
required to spend any money or do any work to prepare the Premises for AI's
occupancy-
OFFICE FURNITURE AND TELEPHONES: AI shall supply, at its own expense, all
furniture and telephones for its use of the Premises. ZZ&A shall have no
obligation to provide Al with any office furniture, telephones (other than the
use of ZZ&A's telephone system) or furnishings whatsoever.
ALTERATIONS: Al shall make no alterations to the Premises without the
written consent of ZZ&A.
LIABILITY OF ZZ&A: ZZ&A shall not be liable for any damage to persons or
property sustained by Al or any other person by reason of the use and occupancy
of the Premises by AI or Al's agents, employees, partners, officers, directors,
shareholders or invitees, if any, or by reason of any act, accident or
occurrence in the Premises, unless such act accident or occurrence was the
direct result of a breach of this lease or the willful misconduct of ZZ&A. ZZ&A
shall, in
<PAGE>
addition, not be liable for any inconvenience or interruption of
services to AI caused by repairs or improvements to the 14th floor space, or for
any reason beyond ZZ&A's control.
INDEMNIFICATION: AI agrees to indemnify and hold ZZ&A harmless from and
against any and all claims arising by reason of the use and occupancy of the
Premises by AI or AI's agents, employees, partners, officers, directors,
shareholders or invitees, if any, unless such claim arises as a direct result of
a breach of this lease or the willful misconduct of ZZ&A.
EVENTS OF DEFAULT: The violation or breach of any of the terms,
provisions, covenants or conditions of this lease, or any rules or regulations
promulgated or enforced by ZZ&A or its
AMENDMENT, MODIFICATION: This lease constitutes the entire understanding
and agreement between the parties and may not be modified, amended or waived in
any manner except by an instrument in writing signed by all of the parties
hereto.
GOVERNING LAW: All matters affecting this lease, including the validity
thereof, are to be governed by, and interpreted and construed in accordance
with, the laws of the State of New York applicable to commercial leases executed
in and to be performed in this State.
HEADINGS: The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this lease.
Michael, if the foregoing is acceptable to you, please sign in the space
below and return (I) a signed copy of this letter, and (ii) checks for the rent
and security deposit, to me today.
Very truly yours,
/s/ Steven Altman
Steven Altman
Agreed to and accepted this
15th day of March, 1999:
AXONYX INC.
By: /s/ Michael Strage
------------------
Name: Michael Strage
Title: V.P. Treasurer
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
United States Securities and July 28, 1999
Exchange Commission
Washington, DC 20549 re: AXONYX Inc.
Gentlemen:
I have read the material disclosed in Part II, Item #3 of the amended
Form 10-SB. The disclosure is correct as I agree with the statements made by
the issuer therein as far as it relates to me.
Very truly yours,
/s/ Barry L. Friedman
- -----------------------------
Barry L. Friedman, CPA
<PAGE>
JAMES E. SLAYTON, CPA
- -------------------------------------------------------------------------------
3867 WEST MARKET STREET
SUITE 208
AKRON, OHIO 44333
U.S. Securities and Exchange Commission
Washington D.C. 20549
Reference: Ionosphere, Inc. August 9, 1999
To Whom It May Concern:
The firm of James E. Slayton, Certified Public Accountant has reviewed
the statements made in Item 3. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. The statements made are accurate and
correct.
Professionally,
/s/ James E. Slayton
- --------------------------
James E. Slayton, CPA
Ohio License ID#04-1-15582
